The largest corporate DB plans in the United States had a strong 2013, and it’s possible that they could reach fully funded status by the end of this year.
The corporate pension plans of the Milliman 100 Pension Funding Index had a strong year as liabilities decreased by US$190 billion and assets increased by US$128 billion. It was the first time since its year-end 2007 report that liabilities decreased and assets increased in the same year.
The funded ratio was 95.2% as of Dec. 31, 2013, 18 percentage points higher than the 77.2% funded ratio at the beginning of 2013.
“Just to put this rally in perspective, these pensions saw a US$337-billion decrease in funded status in 2008, and, in the past year, we saw a $318-billion improvement,” says John Ehrhardt, a principal and consulting actuary at the firm. “These plans’ performance in 2013 nearly erased the losses of 2008. We are getting back on track.”
If the pension plans were to achieve the expected 7.5% median asset return for their portfolios and the current discount rate of 4.83% were maintained during 2014 and 2015, Milliman forecasts this would result in a projected pension surplus of US$14 billion (funded ratio of 100.9%) by the end of 2014 and a projected pension surplus of US$106 billion (funded ratio of 106.8%) by the end of 2015.
Under an optimistic forecast with rising interest rates (reaching 5.43% by the end of 2014 and 6.03% by the end of 2015) and asset gains (11.5% annual returns), the funded ratio would climb to 113% by the end of 2014 and 134% by the end of 2015.
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