The aggregate funding ratio of corporate pension plans declined in April, primarily due to falling discount rates, said reports from Milliman and Aon Hewitt.
The funded status of the 100 largest U.S. corporate defined benefit plans fell 1 percentage point to 77.1% at the end of April, said the Milliman 100 Pension Funding index on Monday.
Liabilities increased 1.65% to $1.792 trillion, the result of a 13-basis-point drop in the discount rate to 3.65% and outpacing a 0.29% increase in assets. Assets rose to $1.381 trillion in April, the result of a 0.69% investment return.
The first four months of 2016 have seen nothing but discount rate declines, and April marks the second-lowest discount rate on record, said Zorast Wadia, principal, consulting actuary and co-author of the report, in a telephone interview.
Year-to-date through April 30, the discount rate is down 51 basis points. January 2015 marked the lowest discount rate since the study began in 2001 at 3.14%.
In 2014, discount rates fell for most months of the year, causing funding ratios to plummet; 2016 is going to be “another year where (the aggregate) funded status loses ground, if this continues,” Mr. Wadia said. Year-to-date, the funded status is down 4.6 percentage points. Liabilities are up $100 billion year-to-date, while assets are up only $6 billion.
If the pension funds achieve a median 7.2% asset return and the discount rate remains at 3.65%, the funding ratio would increase to 78.2% by the end of this year and 80% by the end of 2017, Milliman predicted.
Separately, according to the Aon Hewitt Pension Risk Tracker, the aggregate funded status for DB plans sponsored by S&P 500 companies dropped 30 basis points to 77.9% in April.
Liabilities rose by about 0.93% to $2.1042 trillion, as discount rates dropped eight basis points to 3.75%.
Assets rose roughly 0.51% to $1.6394 trillion in April.