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Pension funded status comes almost full circle at 2016 year-end

Staff Writer |
Milliman released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.

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In December, the funded status for these pension plans improved by $13 billion due to robust investment returns of 1.17%, and the funded ratio increased from 80.3% to 81.0% to close out the year.

Overall, interest rate declines characterized 2016, with the end of August marking the lowest discount rate (at 3.32%) in the PFI's 16-year history.

Since that point and coincident with the conclusion of the U.S. presidential election, interest rates have steadily increased.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.59% by the end of 2017 and 5.19% 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 (3.39% discount rate at the end of 2017 and 2.79% by the end of 2018 and 3.2% annual returns), the funded ratio would decline to 74% by the end of 2017 and 68% by the end of 2018.

"2016 was a rollercoaster of a year, but we're ending up nearly where we started – with a funded ratio of 81.0%," said Zorast Wadia, co-author of the Milliman 100 Pension Funding Index.

"Going into 2017, rumors of potential multiple interest rate hikes by the Federal Reserve have plan sponsors and pension practitioners closely watching market activity. If interest rates continue to climb, the funded ratio could make some major gains."

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