Pension Indicator Updated for April 30, 2016

April 2016: April Showers Cause Further Losses

By: Matt Klein, Prinicpal, Findley Davies.

April continued to be another month without too much to cheer about. As bond rates continue to fall back towards historical lows, it weighs heavily on pension liabilities. The term “historical low” is actually becoming passé as the aggregate yields in our models have struggled to stay above 4% for any meaningful length of time for more than five years now. Currently, discount rates are looking to land in the 3.5% to 4% range, likely 50 basis points lower than either June 30, 2015, or December 31, 2015.

Overall, economic news has shifted pretty significantly over the past six months. While there was some glimmer of hope for increasing interest rates back when the Fed made its first move, headlines now are making references to Japan’s lengthy low interest rate environment. This may cause some plan sponsors to re-evaluate their asset allocations. At least in the short-term, there isn’t any reason for optimism that rising interest rates will solve the underfunding problem for pension plans.

Generally speaking, long-bonds have returned well, directly correlating to the falling yields. Elsewhere, returns have been pedestrian and certainly not enough to offset the increase in liabilities. Now less than two months away from our second biggest fiscal year-end, plan sponsors should be preparing for another year of increased losses on the balance sheet and lower funding percentages.

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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.

July 1, 2015 to Date Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -4.3% -3.6% -1.9% 0.3%
 Recently Frozen -6.2% -5.5% -3.8% -1.7%
 Ongoing Traditional -8.2% -7.5% -5.9% -3.8%
 Cash Balance -4.8% -4.1% -2.5% -0.3%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -0.2% -0.2% 0.1% 0.4%
 Recently Frozen -0.6% -0.6% -0.4% 0.0%
 Ongoing Traditional -1.1% -1.1% -0.8% -0.5%
 Cash Balance -0.3% -0.3% 0.0% 0.3%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -3.7%  -2.7% -0.9% 2.0%
 Recently Frozen -4.0% -3.0% -1.3% 1.7%
 Ongoing Traditional -4.4% -3.4% -1.7% 1.3%
 Cash Balance -3.9% -2.9% -1.2% 1.8%