Pension liabilities consume asset gains

Despite great investment returns recently, the nation’s largest corporate defined benefit pension funds have been defenseless against growing liabilities resulting from dropping discount rates.

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For the second straight month, Milliman, a consulting and actuarial firm, said that 100 of the nation’s largest DB plans sponsored by U.S. public companies experienced yet another $8 billion drop in funded status.

See also: U.S. corporate pension plans improve financial health in 2013

Milliman said in October that the $14 billion increase in total assets was offset when liabilities increased to $22 billion. And, last month, the exceptional $18 billion increase in asset value was cut down by the reported $26 billion bump in pension liabilities, Milliman explains in its November Pension Funding Index report.

It’s “déjà vu,” says Zorast Wadia, a principal and consulting actuary in Milliman’s New York office. “We continue to have positive investment returns – investment returns even ahead of expectations, but because the discount rate keeps dropping, liabilities are going up as well and liabilities increased more than the assets increased.”

While plan sponsors may be happy about achieving their expected 7.4% median asset return for their pension portfolios for the year, overall DB pension funded status is now situated at 84.6%.

According to Wadia, the first 11 months of 2014 have hurt overall pension health. So far, there has been a $85 billion drop in funded status and the discount rate plummeted by 79 basis points to 3.89%.

“[Last month] actually ties August for the lowest discount rate for the year,” Wadia explains.

Source: Employee Benefit News