US - The 100 large defined benefit plans tracked by Milliman are carrying their biggest deficits in a decade.
Milliman said its 100 Pension Funding Index showed a funding level of only 70.1% at end of August, the lowest level since 31 May 2003 when the solvency ratio was 70.5%.
"It's all about the interest rates," said John Ehrhardt, co-author of the Milliman 100 Pension Funding Index. "For months we've been tracking how corporate bond interest rates are contributing to a ballooning projected benefit obligation. Combine this kind of interest rate activity with lackluster asset performance and what you have is the worst funded status in a decade."
The pension funding deficit at the end of August was $460bn, down $108bn from the previous month. Some $17bn of the loss came from asset declines, while an increase in liabilities caused funding levels to sink further into the red by $91bn.
The current discount rate is 4.78%, but a 25 point change in the rate between now and the end of the year could change the deficit by $52bn in either direction, Milliman said.
Milliman's report is the latest to outline the impact low interest rates have had on US pension funds. The pension schemes of S&P1500 companies had a funded status of only 71% at the end of August, Mercer reported earlier this month. (Global Pensions; 2 September 2010)
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