Pension plan funding levels fell again in December: Milliman

The funding levels of pension plans sponsored by large publicly held U.S. employers neared an all-time low in December, Milliman Inc. said in an analysis released Friday.

Defined benefit plans offered by the 100 U.S. employers with the largest pension programs were on average 72.4% funded as of Dec. 31. That's down from 75% in November, 75.5% in October and a steep fall from the 84.1% average funding level at the end of 2010.

At 72.4%, the December funded ratio is only slightly above the all-time monthly low funded ratio, which was 70.5%, set in May 2003, Milliman said.

Promising start

Plan funding levels, Milliman noted in its analysis, “started with some promise” when 2011 began.

Funded levels, aided by a strong equities market, rose during the first three months, hitting 87.7%—the 2011 high—in March.

But funding levels began to fall steeply in July as interest rates slumped to historic lows, which boosted the value of plan liabilities.

Improvement relies on assets

As long as interest rates remain low, any hope for an improvement in plan funding for 2012 and beyond “relies solely on the performance of assets,” Milliman said.

During 2011, the cumulative investment return was just 3%, while plan liabilities shot up 22.1% due largely to falling interest rates.