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)
PP has compiled a list of what to watch out for over the coming months.
Canada Life has signed a £351m bulk annuity contract insuring the pensioner liabilities of 2,510 members and dependents in the AA UK Pension Scheme.
In this week's Pensions Buzz, we want to know if you believe there is ever a case for combining retirement savings products with other savings products, and if the PPF levy for sponsorless schemes is appropriate for DB consolidators.