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."

The Milliman report notes that this is the first time since 2007 that liabilities decreased and assets increased in the same year. Interest rates rose in 2013 after four consecutive years of declines from 2009 to 2012 and investment returns for the 100 largest plans exceeded expectations in 2013, as they have in four out of the last five years.

With similar market returns and interest rate movement in 2014, the Milliman study projects the nation's largest pension plans could be fully funded by the end of the year. Based on pension portfolio median returns of 7.5%, combined with a discount rate just under 5%, the funded status deficit would turn positive by the end of 2014 (100.9% funded ratio) and realize a surplus of $106 billion (106.8% funded ratio) by the end of 2015.

This was the best year's performance for pension plan portfolios in the 13-year history of the Milliman pension funding index.

--Written by Hal M. Bundrick for MainStreet