The funded status of the 100 largest U.S. corporate defined benefit plans improved to 85.6% at the end of June, up 150 basis points from May, the Milliman 100 Pension Funding index showed Thursday.
Liabilities fell 3.6% to $1.692 trillion, the result of a 28-basis-point increase in the discount rate to 4.25%. The last time the discount rate was at or above 4% was October 2014.
Asset values also dropped 1.9% to $1.449 trillion in June, the result of investment returns of -1.56%.
“These pensions cleared an important hurdle this month, with the discount rate that determines pension liabilities climbing above 4% following a seven-month streak of flirting with all-time lows,” said John Ehrhardt, principal, consulting actuary and co-author of the report, in a news release. “It’s no coincidence that we’ve seen a related decrease in pension liabilities, with rising discount rates reducing liabilities by $92 billion year-to-date and contributing to a strong quarter for the 100 largest corporate pensions.” For the quarter, the funded status is up 470 basis points.
Mr. Ehrhardt could not immediately be reached for additional comment Thursday.
If the pension funds achieve a median 7.3% asset return and the discount rate remains at 4.25%, the funding ratio would increase to 86.6% by the end of this year and 88.9% by the end of 2016, Milliman predicts.