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February 15, 2012updated 13 Apr 2017 8:46am

Low interest rates maul US pension funds

Based on the consulting and actuarial firms Pension Fund Index, which monitors 100 of the US largest funds, 2011 ended with the funds nursing a record $464.4bn combined deficit

By LII editorial

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.

“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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