By Hal M. Bundrick
NEW YORK (MainStreet) Pension plans are rebounding with the economy. The nation's 100 largest defined benefit plans experienced investment returns exceeding expectations in 2013 and ended the year with the smallest pension funding deficit since 2007.
Milliman, the consulting and actuarial firm, reports in its latest Pension Funding Index that U.S. pension plans experienced a $10 billion increase in asset value and a $10 billion decrease in pension liabilities in December alone. The funded status of the corporate pension plans improved by $318 billion during 2013, driving the funded deficit down to $73 billion by year end.
"This was the first win-win year for pensions since 2007, with assets improving by $128 billion and liabilities decreasing by $190 billion," said John Ehrhardt, co-author of the report. "Just to put this rally in perspective: these pensions saw a $337 billion decrease in funded status in 2008, and in the past year, we saw a $318 billion improvement. These plans' performance in 2013 nearly erased the losses of 2008. We are getting back on track."
BNY Mellon's Investment Strategy & Solutions Group says that rising equity markets drove assets higher while rising interest rates lowered liabilities.
"December capped off a strong year as the funded status of the typical U.S. corporate plan increased more than 18 percentage points in 2013," said Jeffrey B. Saef, managing director at BNY Mellon. "It was the best of all worlds as rising equities benefited the asset side, while the rising discount rate resulted in lower liabilities. These trends have encouraged a growing number of plan sponsors to reduce their exposure to market volatility."