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The Markets August 6, 2012
DB Plans See Large Decline in Funded Status
Defined
benefit (DB) plans experienced the worst decrease in funded status in the 12
years since Milliman Inc. began tracking it.
Reported by Jay Polansky
Pensions experienced a $120 billion decrease in funded status based on a $133 billion increase in the pension benefit obligation (PBO) and a $13 billion increase in asset value. This pushes the pension deficit to a record $533 billion, surpassing the previous record set on August 31, 2010. The funded ratio of 70.9% is the second lowest in the history of this study; on May 31, 2003, the funded ratio bottomed out at 70.5%.
In July, the discount rate used to calculate pension liabilities fell from 4.32% to 3.92%, pushing the PBO up to $1.831 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.284 trillion to $1.297 trillion.
Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 3.92% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 70.9% to 72.3% by the end of 2012 and to 76.6% by the end of 2013.
Milliman Inc. based its results on 100 of the nation’s largest DB plans.
The complete study is available here.