Pension Indicator Updated for April 30, 2022

Don't Be Afraid to Look

By: Matthew Klein, Principal, USI Consulting Group

There is a scene in the movie “Naked Gun” (or to sound more hip, maybe you’ve seen the meme) where Leslie Nielsen’s character is standing in front of a fireworks factory that is blowing up and setting off all the fireworks in the shop. Nielsen is frantically waving his arms “There’s nothing to see here! Move along!” That image immediately came to me this month after looking at the movement in this month’s Pension Indicator and reviewing my commentary from two months ago. Let’s just say that commentary did not age well.

The second half of 2021 was about as flat as you can get, as the charts below confirm. On February 28th you can see where the lines are starting to break up a bit, but still they are clustered fairly tight compared to most years. Then came March where the divergence starts to take shape. April continued that theme. In general, the longer your duration, and the heavier your mix in equities, the better off you were.

To this month’s title, if you just listen to the news, the sky is falling. The S&P 500 is off to its worst start of a year since 19391. The aggregate corporate bond rate used in our modeler was up 67 basis points in April alone. If you look through an asset-only lens, there is little positive to find.

Pension plans are not just asset-only measurements, though. The yield curve in our model had a nearly perfect shift upwards (meaning, yields increased uniformly across duration). Because the “Ongoing plan” has a much longer tail, it is much more susceptible to shifts in yield, and that is why it looks like it is jumping off the page. On the other hand, if you are a sponsor of a long-time frozen plan that has put into place strategies to mute the market's impact, it’s likely status quo for you.

Furthermore, while prices are falling, equities generically have not fallen as much as many types of fixed income. Rising yields, which lower obligations in a present value calculation, should more than offset the decreases in the stock market. It’s very apparent in the graphs that the more aggressive portfolios, even while losing money, are still better off than the LDI strategies in this cycle.

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

1Bloomberg

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
Frozen (for several years) 4.6% 3.1% -0.5% -4.4%
 Recently Frozen 10.0% 8.5% 4.8% 0.6%
 Ongoing Traditional 16.0% 14.4% 10.5% 6.1%
 Cash Balance 5.9% 4.5% 0.8% -3.2%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 1.0% 0.5% -1.0% -2.5%
 Recently Frozen 3.7% 3.2% 1.7% 0.1%
 Ongoing Traditional 6.6% 6.1% 4.6% 3.0%
 Cash Balance 1.7% 1.2% -0.3% -1.8%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 6.0% 4.3% 0.8% -3.1%
 Recently Frozen 9.6% 7.9% 4.2% 0.2%
 Ongoing Traditional
13.6% 11.9% 8.0% 3.8%
 Cash Balance 7.0% 5.4% 1.8% -2.2%


Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure