The funded status of U.S. pensions in January improved by $106 billion in January, according to a new report.
Global consulting and actuarial firm Milliman Inc. Seattle, published this finding in a summary of results from the company’s Pension Funding Index, which consists of 100 of the nation's largest corporate defined benefit pension plans.
The January rise in the funded status results from an $83 billion decrease in the pension benefit obligation (PBO) and a $23 billion increase in assets. The $106 billion advancement reverses a $74 billion deficit increase over the course of 2012 and “sets off these 100 plans on a strong start in 2013,” the report states.
"In January we saw one of the more cooperative interest rate environments in recent memory," says John Ehrhardt, co-author of the Milliman Pension Funding Study. "Over the course of 2012, plunging interest rates drove a ballooning pension funded status deficit. Now these rates have helped deflate that deficit. It's early, but $106 billion in improvement is welcome news.”
In January, the report states, the discount rate used to calculate pension benefit obligations (PBOs) increased from to 4.45 percent from 4.18 percent, decreasing the PBO to $1.665 trillion from $1.748 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.337 trillion to $1.360 trillion.
Looking forward, if these 100 pension plans were to achieve their expected 7.8% median asset return and if the current discount rate of 4.45% were to be maintained throughout 2013 and 2014, their pension funded ratio would improve from 81.7% to 86.1% by the end of 2013 and to 91.1% by the end of 2014, the report states.
These figures are tentative and will be revisited as part of the 2013 Milliman Pension Funding Study, to be completed in March. Milliman states that it expects that de-risking activities made by some of these companies will probably lower asset and liability figures, which may slightly negatively affect the plans' overall funded status.