Falling interest rates hit pension plans' funding status: Milliman
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The funded status of very large pension plans sponsored by public companies slipped in December as interest rates, which increased the value of plan liabilities, continued to fall, according to a Milliman Inc. survey released Wednesday.
Defined benefit plans offered by U.S. employers with the 100 largest pension programs were an average of 83.6% funded as of Dec. 31, down from 84.7% as of Nov. 30 and sharply lower than a year ago when the plans, on average, were 88.3% funded.
“What a difference a year makes,” John Ehrhardt, a principal and consulting actuary in Milliman's New York office, said in a statement.
“Last year at this time we were celebrating a historic rally for these pensions, thanks to — surprise surprise — cooperative interest rates. This year, it's the opposite story, with interest rates falling to 3.8%, the lowest rate we've ever seen in the 14-year history of this study. With rates this low, the liability increase for these pensions outstripped strong asset performance by more than $100 billion,” Mr. Ehrhardt said.
At the end of December, the plans had $1.483 trillion in assets and $1.775 trillion in liabilities, resulting in a funding deficit of $292 billion, an increase of more than $105 billion compared with Dec. 31, 2013.
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