“Pension plan sponsors may be feeling whiplash after the last three years,” says
Study highlights include:
Asset allocations shift toward fixed income. Equity allocations in the pension portfolios dropped to 37.3% by the end of 2014, the lowest in the 15-year history of this study. The companies included in this study have generally shifted toward higher allocations in fixed-income investments.
Risk transfer trend continues. Some plan sponsors engaged in pension risk transfer activities, including two well-publicized pension buyouts conducted for two of the Milliman 100 companies (Bristol-Meyers Squibb and Motorola).
New mortality assumptions increase pension liabilities by 3.4%. The magnitude of these increases is contingent on age, gender and other demographic characteristics of each plan’s participants. Based on the footnote disclosures at year-end 2014, the new SOA mortality assumptions appeared to increase pension liabilities by approximately
Contributions decline during 2014. The
Pension expense increases. Robust investment gains in 2014 partially offset the impact of declining discount rates, producing a net increase of
Market capitalization of these plans increase by 5.7%. Pension deficits represented less than 10% of market capitalization for 73 of the Milliman 100 companies (down from 78 in 2013).
What to expect in 2014. The passage of HATFA may result in lower contributions on par with those seen in 2014. However for plans already engaged in liability-driven investing, higher contribution levels can be expected. The lower discount rates at the end of 2014 are expected to lead to significant 2015 pension expense increases, since discount rates for the coming fiscal year are set at the start of the fiscal year. This does not factor in any possible plan de-risking activity.
Milliman is among the world’s largest providers of actuarial and related products and services. The firm has consulting practices in healthcare, property & casualty insurance, life insurance and financial services, and employee benefits. Founded in 1947, Milliman is an independent firm with offices in major cities around the globe. For further information, visit milliman.com.
About the Milliman Pension Funding Study
For the past 15 years, Milliman has conducted an annual study of the 100 largest defined benefit pension plans sponsored by U.S. public companies. The results of the Milliman 2015 Pension Funding Study are based on the pension plan accounting information disclosed in the footnotes to the companies’ annual reports for the 2014 fiscal year and for previous fiscal years. These figures represent the GAAP accounting information that public companies are required to report under Financial Accounting Standards Board Accounting Standards Codification Subtopics 715-20, 715-30, and 715-60. In addition to providing the financial information on the funded status of their U.S. qualified pension plans, the footnotes may also include figures for the companies’ nonqualified and foreign plans, both of which are often unfunded or subject to different funding standards from those for U.S. qualified pension plans. The information, data, and footnotes do not represent the funded status of the companies’ U.S. qualified pension plans under ERISA.
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