The funding ratio of the 100 largest U.S. corporate pension plans remained flat at 75.7% in July because of strong investment returns offsetting rising liabilities, the Milliman 100 Pension Funding index showed Monday.
Liabilities rose 1.6% to $1.868 trillion in July, the result of a 12-basis-point drop in the discount rate to 3.33%, the lowest monthly discount rate in 2016 and the lowest in the 16-year history of Milliman's study. Asset values increased 1.7% to $1.415 trillion in June, the result of a 2.08% investment return.
If those 100 largest U.S. corporate pension plans achieve a median asset return of 7.2% and if the current 3.33% discount rate were maintained for the rest of 2016 and all of 2017, the funding ratio would rise to 76.5% by the end of this year and 78.4% by the end of 2017, Milliman predicts.
Under an optimistic forecast in which the discount rate rises to 4.18% by the end of 2017 and the annualized return is 11.2%, the funding ratio would reach 92% by the end of 2017. Under a pessimistic forecast in which the discount rate drops to 2.48% by the end of 2017 and the annualized return is 3.2%, the funding ratio would plummet to 66% by the end of 2017.
For the six and 12 months ended July 31, the funded status is down 4.2 percentage points and 8.6 percentage points, respectively. Liabilities have risen 10.7% and 9.5%, respectively, in those periods; assets are up 5% from Jan. 31 and down 1.6% from July 31, 2015.
