The funded status of the 100 largest U.S. corporate defined benefit plans increased to 84.1% at the end of May, up 150 basis points from April, the Milliman 100 Pension Funding index showed Thursday.
The funding improvement primarily was the result of a 15-basis-point increase in the discount rate to 3.97%, which helped reduce plan liabilities 1.95% to $1.756 trillion in May.
Asset values dropped 0.2% to $1.477 trillion; investments returned 0.15% in May.
“The second quarter of 2015 has reversed the losses we saw in the first quarter,” said John Ehrhardt, principal, consulting actuary and co-author of the report, in a news release. “For the year, these pensions have now experienced a $50 billion decrease in the funded status deficit, thanks to rising interest rates. The discount rate that determines pension liabilities is now at 3.97%, and getting back above 4% would continue to push pension funding in the right direction.”
The last time the discount rate was 4% was October.
If the pension funds achieve a median 7.3% asset return and the discount rate remains at 3.97%, the funding ratio would increase to 85.3% by the end of this year and 87.7% by the end of 2016, Milliman predicts.