Pension Indicator Updated for January 31, 2022

Rough Seas Offset by Rising Rates

By: Brian Hrabak, CFA, Clearstead

Equities had a difficult month, but rising yields helped mute the impact for pension plan sponsors. Ongoing inflation concerns, continued discussion of Federal Reserve tightening, and geopolitical tensions contributed to a spike in volatility and a risk-off market environment. Despite those concerns and Covid cases, positive economic data continued into January with a strong 4Q GDP release of 6.9% year-over-year1. The U.S. Economy grew by 5.7% in 2021, the largest one-year increase since 19841.

The Federal Reserve left interest rates unchanged at their January meeting, but Chairman Powell relayed that an increase would soon be warranted2. The Fed reinforced the idea of a March rate hike and markets reacted by increasing the expected number of hikes from three up to five for 20223.

U.S. Treasury yields marched higher with the yield curve flattening further in January. The 2-year yield rose 45 basis points to 1.18% while the 10-year yield increased 27 bps to close at 1.78%3. Investment grade corporate spreads widened by 14 basis points3 following the risk-off market environment.

Equity market returns were negative across the globe in January with the S&P 500 -5.2%, the MSCI EAFE -4.8% and the MSCI Emerging -1.9%3. Within fixed income, the increase in interest rates led to the Bloomberg Aggregate Bond Index losing -2.2%. The Bloomberg Long Govt/Credit Index fell more substantially: -4.9% for January3.

Negative returns on growth assets were offset by higher discount rates, leaving funded statuses largely unchanged. The higher interest rate environment resulted in a substantial liability decrease of 3.9% - 6.4% for the month. Asset returns of between -3.9% to -5.2% resulted in a challenging start to the new year for investors, but pension plan sponsors were protected by rising rates.

From all of us at USI Consulting Group and Clearstead, we hope everyone and their families are safe and healthy. 

As always, thanks for reading, and drop us a comment on how we're doing.

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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.

1Bureau of Economic Analysis - U.S. Department of Commerce

2www.federalreserve.gov

3Bloomberg

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
Frozen (for several years) -0.2% -0.2% -0.8% -1.5%
 Recently Frozen 1.0% 1.0% 0.4% -0.3%
 Ongoing Traditional 2.2% 2.2% 1.7% 0.9%
 Cash Balance 0.1% 0.1% -0.5% -1.2%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -0.2% -0.2% -0.8% -1.5%
 Recently Frozen 1.0% 1.0% 0.4% -0.3%
 Ongoing Traditional 2.2% 2.2% 1.7% 0.9%
 Cash Balance 0.1% 0.1% -0.5% -1.2%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 12.5% 9.8% 6.1% 1.8%
 Recently Frozen 13.4% 10.7% 7.0% 2.6%
 Ongoing Traditional
14.4% 11.6% 7.9% 3.5%
 Cash Balance 12.9% 10.3% 6.6% 2.2%


Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure