Pension liabilities of the 100 largest U.S. corporate defined benefit pension plans decreased by $28 billion in November, while assets increased by $5 billion, bringing the Milliman 100 Pension Funding Index funded status deficit to $466 billion and the funded ratio of 74 percent. The November ratio still lags the year-end 2011 value of 78.7 percent, Milliman said, with only one month left in 2012 to achieve a neutral change year-to-year.
November’s funded status improvement was mainly due to an increase in the corporate bond interest rates that are the benchmarks used to value pension liabilities. As of Nov. 30, the funded ratio of 74 percent was up from 72.6 percent at the end of October 2012.
The Milliman 100 PFI projects the funded status for 100 major pension plans studied, reflecting the impact of market returns and interest rate changes and using actual reported asset values, liabilities and asset allocations.
Another measurement widely watched for U.S. DB plans’ funded status in November reached its best level since May. BNY Mellon Asset Management’s Pension Liability Index, which monitors the typical corporate pension plan on a monthly basis, posted a 2.6-percentage-point improvement over October, helped by strong U.S. stock gains in November. It rose to an 82.5-percent funding level, up from 79.9 percent in October, according to BNY Mellon. Plan liabilities are calculated using the yields of long-term investment-grade corporate bonds. Lower yields on these bonds result in higher liabilities.
Assets for the typical U.S. corporate plan rose 3.6 percent in November, outpacing a 0.2-percent gain in liabilities during the month, which reflected interest accruals, as the discount rate for November was unchanged from October. For the year, through Nov. 30, the funding ratio for the typical plan is up 8.6 percentage points, as represented by the BNY Mellon index.
And a third barometer for corporate pension plans’ funded status also showed improvement in November. Mercer’s aggregate deficit in pension plans sponsored by S&P 1500 companies decreased by $12 billion during November to $607 billion, according to figures Mercer released in early December. This corresponds to an aggregate funded ratio of 72 percent as of Nov. 30, the global consulting firm reported.
Funded ratios have rebounded slightly above the record low ratio of 70 percent recorded July 31, when the aggregate deficit was $689 billion. Mercer estimates the aggregate combined funded-status position of plans at S&P 1500 companies on a monthly basis.
Finding out More
For more information about funding balances, adjusted funding target attainment percentages and underfunded retirement plans, see ¶132 in the Pension Plan Fix-It Handbook.
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