Falling interest rates lead to pension plan funding decline

Plummeting interest rates, which inflated the value of pension plan liabilities, walloped funding levels in pension plans sponsored by large publicly held U.S. employers last year, reversing a big chunk of an earlier improvement in funding levels, according to a Milliman Inc. survey.

Defined benefit plans offered by the 100 U.S. employers with the largest pension programs were, on average, 81.7% funded at year-end 2014, down sharply from 87.7% at the end of 2013.

While the market value of plan assets, fueled by investment gains, jumped to $1.452 trillion in 2014 from $1.395 trillion a year earlier, the value of plan liabilities soared by more than $189 billion, leaping to $1.779 trillion at the end of 2014.

Combined, the rise in plan assets and the far bigger increase in the value of plan liabilities resulted in a $131.3 billion decline in the plans' funded status. At year-end 2014, the plans' aggregate funding deficit hit $326.2 billion, up sharply from 2013's funding shortfall of $194.9 billion.

Embedded in the Milliman survey, which was released last week, are other findings that illustrate the sharp decline in funding levels in the nation's biggest corporate pension plans.

For example in 2013, 18 of the 100 employers had plans that were at least 100% funded. Last year, just nine employers had plans with funding levels topping 100%.

Among surveyed employers, Armonk, New York-based International Business Machines Corp. had the largest defined benefit pension program with $95.3 billion in assets. Its plans were 89.5% funded last year, down from 93.7% in 2013.

General Motors Co. had the second-largest pension program with $80.5 billion in assets last year, up from $79.2 billion in 2013. GM's plans were 76.9% funded in 2014, down from 79.9% in 2013.

NextEra Energy Inc., a Juno Beach, Florida-based energy and utility company, had the highest funded ratio in 2014 at 149.6%, down from 163.8% in 2013.

At the other end, Atlanta-based Delta Airlines Inc. had the lowest funded ratio of 42.8% in 2014, down from 46.9% in 2013.

Delta was followed by another airline, American Airlines Group Inc. of Fort Worth, Texas, with a 2014 funded ratio of 62.4%, down from 67.5% in 2013.

In conducting the analysis, Seattle-based Milliman analyzed financial reports of publicly held companies sponsoring the 100 largest pension programs for which full-year data was available.