Pensions See Near-Record Funding Deficit in June

Plunging discount rates drove up pension liabilities in June, swamping asset improvement and capping a bad second quarter. 

Milliman’s  Pension Funding Index, which consists of 100 of the nation’s largest defined benefit pension plans found that corporate pensions in June experienced a $57 billion decrease in funded status based on a $77 billion increase in the pension benefit obligation (PBO) and a $20 billion increase in asset value. The $57 billion decrease in funded status pairs with the combined April and May decreases of $129 billion, increasing the funding deficit by $186 billion during the second quarter.

“With the help of the lowest discount rate in the 12-year history of our study, corporate pensions last month saw their funding deficit increase to a near-record $415 billion,” said John Ehrhardt, co-author of the Milliman Pension Funding Study. “This is the second worst deficit we’ve seen.”

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In June, the discount rate used to calculate pension liabilities fell from 4.56% to 4.32%, pushing up the PBO to $1.698 trillion at the end of the month. The overall asset value for these 100 pensions increased from $1.263 trillion to $1.283 trillion.

Looking forward, if these 100 pensions were to achieve their expected 7.8% median asset return and if the current discount rate of 4.32% were to be maintained throughout 2012 and 2013, these pensions would improve the pension funded ratio from 75.6% to 77.4% by the end of 2012 and to 82.0% by the end of 2013.

The results of the Milliman 100 Pension Funding Index were based on the actual pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the preceding fiscal year and for previous fiscal years.

To view the study, click here.

 

Davidson Introduces Small/Mid Equity Mutual Fund

An employee-owned asset management firm, Davidson Investment Advisors, launched the Davidson Small/Mid Equity Fund.

The fund is designed for investors seeking broad stock market exposure of small to midsize companies with an emphasis on fundamental research and risk management. The company’s fund family has two funds: the Davidson Small/Mid Equity Fund and the Davidson Multi-Cap Equity Fund.  

The fund of small and midsize equities is managed by a team of seven investment professionals, according to Edward Crotty, chief investment officer and portfolio manager at Davidson Investment Advisors. “It focuses on an intense, research-driven approach of small and medium size companies that are largely undiscovered and/or misunderstood in the marketplace,” Crotty said. 

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Davidson Investment Advisors is a subsidiary of Davidson Companies, an employee-owned financial services holding company in Montana.  

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