Pension Indicator Updated for December 31, 2017

December 2017: A Good Year Ends on a Slight Down Note

By: Matthew Klein, Principal, Findley Davies

Happy New Year!

We can put a bow on 2017.  Despite U.S. corporate bond yields hovering just above their historical lows from the summer of 20161, a bullish domestic equity market was still able to bring home improved funded ratios for most pension plans in 2017.

December itself was a bit of a downer, where falling bond rates pushed up liabilities more than one would hope.  The change in the U.S. Treasury yield curve during 2017 was also notable, as the U.S. Federal Reserve rate hikes helped push up short-term rates while demand for long-term bonds pushed yields to the brink of record low levels.  Some short-term yields have risen by 50 basis points or more while long-term rates have fallen by 50 basis points or more.

As a reminder, the Pension Indicator tracks the impact on funded status due to external forces (i.e. investment returns and bond yields).  Many plan sponsors also contributed additional amount to their pension plans in 2017 either for tax reasons or to save on PBGC premiums.  As a result, many pension plans are experiencing their healthiest funded status in a decade.  The start of the Great Recession is now 10 years old!

Thanks for a great 2017 and look forward to an even better 2018! 

Sources:

1 Citigroup Pension Discount Curve

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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.

Year to Date Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 6.3% 5.2% 5.4% 4.5%
 Recently Frozen 3.2% 2.1% 2.3% 1.5%
 Ongoing Traditional 0.1% -1.0% -0.8% -1.6%
 Cash Balance 5.8% 4.7% 4.8% 4.0%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -0.6% -0.5% -0.1% 0.3%
 Recently Frozen -1.5% -1.4% -1.0% -0.6%
 Ongoing Traditional -2.5% -2.4% -2.0% -1.6%
 Cash Balance -0.8% -0.7% -0.3% 0.1%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 6.3% 5.2% 5.4% 4.5%
 Recently Frozen 3.2% 2.1% 2.3% 1.5%
 Ongoing Traditional

0.1%

-1.0% -0.8% -1.6%
 Cash Balance 5.8%

4.7%

4.8% 4.0%

FrozenManyYears

RecentlyFrozen

Ongoing

CashBalance

Disclosure