Pension Indicator Updated for September 30, 2019

A Brief Reprieve

 By: Grant Guyuron, Senior Managing Director, Clearstead

After a challenging month of August, markets rebounded in favor of underfunded and less hedged pension plans in September. The “fear trade” related to concerns over a slowdown of global growth and pessimism surrounding trade negotiations faded to the background as equity markets rallied and interest rates backed up. This reversal was partially facilitated by another quarter point cut in the overnight rate by the Federal Reserve.

For the month, the S&P 500 (U.S. large cap stocks) returned 1.9%, the MSCI ACWI ex USA (international stocks) returned 2.6%, and fixed income returns outside of high yield bonds and bank loans were largely negative amid higher interest rates; the 10 Year U.S. Treasury Yield increased by 17 bps in September, ending the month at 1.67%i. On the liability side, the FTSE Pension Liability Index pointed towards lower values, with returns ranging from -2.47% to -1.51%ii depending on the liability duration. Thus, a plan sponsor with a growth-oriented portfolio may have experienced funded status improvement of over 3.5%.

So far in October, volatility has returned to both equity and fixed income markets. Rates have fallen along with equity markets. Indeed, September served as only a brief reprieve from funded status volatility for plan sponsors.

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Information provided in this article is general in nature, is provided for informational purposes only, and should not be construed as investment advice. Performance data represents past performance.  Past performance is not indicative of future results.

iSource: Bloomberg

ii FTSE Pension Liability Index, as of 9/30/19

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -1.5% -0.9% 1.1% 3.5%
 Recently Frozen -5.6% -5.0% -3.1% -0.8%
 Ongoing Traditional -9.6% -9.1% -7.3% -5.0%
 Cash Balance -2.5% -2.0% 0.0% 2.4%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 2.5% 1.9% 1.1% 0.1%
 Recently Frozen 3.1% 2.5% 1.7% 0.6%
 Ongoing Traditional 3.7% 3.1% 2.3% 1.2%
 Cash Balance 2.6% 2.0% 1.2% 0.2%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -6.6% -4.6% -0.8% 4.2%
 Recently Frozen -10.1% -8.0% -4.5% 0.3%
 Ongoing Traditional
-13.6% -11.6% -8.2% -3.6%
 Cash Balance -7.6% -5.4% -1.8% 3.1%

Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

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