Thanks primarily to low
interest rates, 2011 was a “bad year” for US defined benefit
pension funds, reports Milliman. Based on the consulting and
actuarial firm’s Pension Fund Index, which monitors 100 of the US’
largest funds, 2011 ended with the funds nursing a record $464.4bn
combined deficit. The funds had total assets of $1.22trn at the end
of 2011.
Last year was “a particularly
dispiriting year” for the 100 pension funds, according to John
Ehrhardt, a Milliman principal and consulting actuary.
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“Assets trod water, producing
an anaemic $12.3bn increase in value as record low interest rates
increased pension liabilities by $248.7bn.”
This left the funds’ funded
ratio at 72.4% after touching a high for the year of 87.7% in
March.
What lies ahead is a matter
of speculation. Milliman estimates that if the 100 funds achieve an
8% return on assets and the current discount rate of 4.25% is
maintained, the funding deficit will fall to 75.9% and 79.6% at the
end of 2012 and 2013, respectively.
This would see the combined
deficit of the funds fall but remain at dauntingly high at $410bn
and $352bn at the end of 2012 and 2013, respectively.
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