Milliman: Corporate funded status falls on first discount rate drop since March

The funded status of the 100 largest U.S. corporate defined benefit plans fell 70 basis points to 84.8% at the end of July, the Milliman 100 Pension Funding index showed Thursday.

Liabilities rose 1.54% to $1.718 trillion due to an 11-basis-point drop in the discount rate to 4.14%, the first monthly decrease in the discount rate since March.

Asset values also rose 0.69% to $1.457 trillion, the result of investment returns of 1.07%, which although positive, were not enough to offset the liability increase, said Zorast Wadia, principal, consulting actuary and co-author of the Milliman report, in a telephone interview. July’s expected investment return was a median 0.59%.

“Fortunately, the discount rate remained above 4%,” added John Ehrhardt, principal, consulting actuary and co-author of the report, in a news release on the results. “Interest rates remain the big story this year, contributing to a $66 billion decrease in the pension benefit obligation.” June’s discount rate level of 4.25% marked the first time since October 2014 the discount rate was at or above 4%.

If the pension funds achieve a median 7.3% asset return and the discount rate remains at 4.14%, the funding ratio would increase to 85.6% by the end of this year and 87.9% by the end of 2016, Milliman predicts.