Pension Indicator Updated for October 31, 2016

October 2016: It Might Not Be as Bad as it Looks

By: Matthew Klein, Principal, Findley Davies, Inc.

Things have been remarkably silent the last few months.  By the time this is posted, we (hopefully) will have clear winners on Election Day and investors can adjust expectations accordingly.  In the meantime, the Pension Indicator has been treading water for a few months now.  

Equities saw some pullback in October, but so did fixed income instruments as well.  Treasuries climbed out of the record low yields, and the offsetting higher yields lowered expected liabilities. This was mainly a wash for most plans, but a slightly steeper yield curve rewarded more immature pension plans.  

Looking ahead to year-end, most pension plans are staring down a 50-75 basis point decrease, which would generally increase liabilities by 6-10%.  Assets have for the most part returned close to expectations (creating neither a gain or loss), and hence the charts reflect this range of decreases in funded position.  

One potential helper came last month in the form of the latest Society of Actuaries (SOA) mortality table projections.  This is now the third year in a row that the SOA has released an update in October.  Continuing last year's theme, the SOA has lowered the life expectancies to reflect the minimal improvement actually observed from the first part of this decade.  The SOA was anticipating more aggressive improvements than actually happened.  Our estimate in general is that pension plans should see a decrease in liability of roughly 1.5% if they used the MP-2015 scale last year and move to the MP-2016 scale this year.  

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.

January 1, 2016 to Date Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -3.4% -2.7% -0.9% 1.4%
 Recently Frozen -5.7% -5.0% -3.2% -1.0%
 Ongoing Traditional -8.1% -7.4% -5.7% -3.5%
 Cash Balance -4.0% -3.3% -1.5% 0.8%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 0.2% 0.1% -0.2% -0.6%
 Recently Frozen 1.1% 0.9% 0.6% 0.2%
 Ongoing Traditional 2.0% 1.9% 1.6% 1.1%
 Cash Balance 0.4% 0.3% 0.0% -0.4%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -1.5%  -0.7% 1.5% 4.5%
 Recently Frozen -3.6% -2.8% -0.7% 2.2%
 Ongoing Traditional -5.9% -5.1% -3.1% -0.2%
 Cash Balance -2.1% -1.2% 0.9% 3.9%