The funded status of the 100 largest U.S. corporate pension plans fell 1.8 percentage points to 75.7% in June because of rising liabilities, the Milliman 100 Pension Funding index showed Friday.
Liabilities rose 3% to $1.839 trillion in June, the result of a 23-basis-point drop in the discount rate to 3.45%, the lowest monthly discount rate in 2016 and the second lowest in the 16-year history of Milliman’s study. Asset values increased 0.7% to $1.393 trillion in June, the result of a 1.01% investment return.
If the pension funds achieve a median 7.2% asset return and the discount rate remains at 3.45%, the funding ratio would increase to 76.6% by the of 2016 and 78.4% by the end of 2017, Milliman predicted.
Funding ratios have trended downward over the past 12 months, and the June 23 Brexit vote “exacerbated” things, with the discount rate dropping a further 23 basis points in June alone, said Zorast Wadia, principal, consulting actuary and co-author of the Milliman report, in a telephone interview.
For the six and 12 months ended June 30, the funded status is down 6 percentage points and 9.3 percentage points, respectively. Liabilities have risen 9.3% in both of those periods; assets are up 1.3% from Dec. 31 and down 2.5% from June 30, 2015.
Rising asset values have prevented the funded status from declining further. Year-to-date through June 30, investments have returned 3.74%, which is slightly ahead of expectations, Mr. Wadia said. And while the June drop in the discount rate boosted liabilities, plan sponsors with heavy fixed-income allocations benefited.