For Corporate Pensions, November Best Month of 2016 As Funding Status Jumps

The aggregate funding ratio of the country’s largest corporate pension plans climbed significantly in November, jumping 3 percentage points from 77.2 percent to 80.3 percent.

Funding-wise, it was easily the best month of 2016 for corporate pensions.

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In November, the funded status for these pension plans experienced its largest increase of the year, improving by $71 billion, primarily due to interest rate gains that reduced the deficit for the Milliman 100 plans to $340 billion. The funded ratio for these plans climbed sharply, increasing three percentage points from 77.2% to 80.3%.

“While plan sponsors are pleased with the third straight month of funded status improvement, all eyes are on interest rates as we near the December 30th measurement date,” said Zorast Wadia, co-author of the Milliman 100 PFI, “Discount rates have climbed 66 basis points since their record low in August, now the question is whether we’ll see interest rates climb above 4% by year’s end.”

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.63% by the end of 2017 and 5.23% by the end of 2018) and asset gains (11.2% annual returns), the funded ratio would climb to 93% by the end of 2017 and 106% by the end of 2018.  Under a pessimistic forecast (3.33% discount rate at the end of 2017 and 2.73% by the end of 2018 and 3.2% annual returns), the funded ratio would decline to 73% by the end of 2017 and 66% by the end of 2018.

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