Pension Indicator Updated for March 31, 2018

Springing into Action

By: Grant Guyuron, Senior Managing Director, Hartland

It’s April, and spring officially started since the last edition of Pension Indicator…not that anyone would know from the weather in Ohio. It seems like the long winter does not want to end, true to Punxsutawney Phil’s prediction.  However, there are a few signs of spring that should be encouraging to those of us that are tired of the snow: daylight is lasting longer, trees are beginning to bud, and baseball is back.

For pension plan sponsors, the last two months may have seemed extra depressing, as the incredible investment gains earned in January have disappeared in the last two months of winter.  But like the early signs of spring, there are reasons to be optimistic about the funded status of your pension plan: interest rates remain meaningfully higher than where they started the year.  As of 3/31/18, the 10 Year U.S. Treasury Yield was 2.74%, which was down from February (2.87%) but up 34 bps from December 2017 (2.40%).  For the year, underfunded plan sponsors have likely experienced a material gain in funded status due to the decline of pension liabilities, which could be as much as 3.5% – 5.5% lower depending on duration1.

Despite the fact that some plan asset returns may be slightly negative, plan sponsors may have experienced a meaningful increase in their plan(s)’ funded status.  For those that have established glide paths (which provide a guide on asset allocation based on the plan’s funded status), it may be worth evaluating a potential increase in the portfolio’s exposure to liability hedging investments to protect the funded status of the plan.  Plan sponsors should discuss the pros and cons of such a move with their investment consultant and actuary to fully understand the consequences any changes (e.g. impact on pension expense, funded status volatility, and PBGC premiums).

One may ask if the timing of adding liability hedging exposure is prudent from an investment perspective, and it’s a valid question. It is possible that rates could continue to rise and that equity markets could once again rally, but for most, the funded status of the plan should continue to improve even if liability hedging exposure is added (so long as the portfolio is not 100% hedged).  More importantly, moving up the glide path could be a risk reduction strategy, putting investment decisions in context of the organization’s financial goals.

So while it may not feel like spring outside and there is no perfect time to execute a move up the glide path, you may be closer to the end then you think, and it could be time to spring into action.

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

1 Citi Pension Liability Index, as of 3/31/18

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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) 2.4% 2.1% 1.3% -0.1%
 Recently Frozen 3.5% 3.2% 2.4% 1.1%
 Ongoing Traditional 4.8% 4.5% 3.6% 2.3%
 Cash Balance 2.7% 2.5% 1.6% 0.3%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -1.5% -1.1% -0.7% -0.1%
 Recently Frozen -1.8% -1.4% -1.0% -0.4%
 Ongoing Traditional -2.1%% -1.7% -1.3% -0.7%
 Cash Balance -1.5%% -1.2% -0.8% -0.2%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 9.2%% 8.4% 8.2% 7.1%
 Recently Frozen 7.5%% 6.7% 6.6% 5.5%
 Ongoing Traditional


4.9% 4.8% 3.7%
 Cash Balance 9.1%


8.1% 7.0%