US corporate pensions are unlikely to meet 2015 return expectations of 7.3% due to poor performance in August and September, according to a new report by Milliman.
The actuarial firm’s latest index of corporate pension firms revealed defined benefit plans lost $51 billion in the third quarter of 2015. This 2.5% quarterly investment loss marked the largest third quarter loss for corporate pensions since 2011.
In the same period, liabilities increased by $15 billion, growing the funded status deficit by $66 billion.
In September alone, corporate pensions lost $28 billion and gained $9 billion in liabilities, resulting in a further drop in funding. The funded ratio for corporate pensions at the end of September was 81.7%, down from 83.6% a year prior, according to Milliman.
Similar studies by BNY Mellon and Wilshire Consulting showed corporate pension funding status dropping in September to 81.8% and 81.3%, respectively.
“The calendar year began with strong equity performance that seemed so promising, and yet here we are looking at an overall decline in equities for the year,” said John Ehrhardt, principal and consulting actuary at Milliman.
In order to meet the projected annual returns of 7.3%, pensions would need a “massive rally” of nearly 8.4% in gains in the fourth quarter, said Ehrhardt.
Milliman also forecasted DB plans’ funded ratios would increase to 82.2% and 84.2% at the end of 2015 and 2016, respectively, if they are able to achieve the expected annual return.
Source: Milliman
Related: Corporate DB Plan Funding Levels Suffer in 2014 & US Public Pensions ‘On the Road to Recovery’