Pension Indicator Updated for May 31, 2018

Swimming Against the Current in May

By: Grant Guyuron, Senior Managing Director, Hartland

Summer is approaching, and many of us are embracing (or bracing for) the chance to get into the water and out of the heat.  If you have ever gone swimming in an open body of water, then you know how challenging it can be to swim against a current.  Try as you might, it is difficult to make progress when the current is running against you.  As a defined benefit plan sponsor, this is probably similar to the way you feel after the month of May.  While asset values were broadly positive among investors, liabilities increased by as much or more than plan assets in many cases because of a decline in interest rates.  According to the Citi Pension Liability Index – Intermediate, liabilities with a duration of 15.1 years appreciated 1.2% in the month1 , while most asset pools returned less than 1%.

Geopolitical headlines again drove markets, including concerns about a potential populist government in Italy, continued threats to global growth by way of tariffs, and uncertainty about negotiations between the U.S. and North Korean governments.  Irrespective of all of these issues, U.S. equity markets, led by small cap stocks (represented by the Russell 2000 Index) (+6.1%), marched higher and the U.S. dollar strengthened.  A strengthening U.S. dollar had adverse effects for unhedged international stock and bond investments.  Within the U.S. fixed income markets, intermediate investment grade and long duration bond prices were bid up as yields fell.

Despite a challenging May, most plan sponsors have been swimming with the current year-to-date and have made significant progress in improving their funded status.  Liabilities have declined somewhere between 4-6% on average, so depending on the plan’s asset allocation, it is conceivable that most plans have experienced 2-4% increase in funded status (assuming the portfolio is not fully hedged to its liability).  It may still be a good time to review the plan’s position on the glide-path and consider options to de-risk, but stay focused and keep swimming.

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

1 Citi Pension Liability Index, as of 5/31/2018

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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) 3.8% 3.1% 1.5% -0.7%
 Recently Frozen 5.2% 4.5% 2.9% 0.6%
 Ongoing Traditional 6.7% 6.0% 4.4% 2.1%
 Cash Balance 4.2% 3.4% 1.9% -0.3%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 0.0% 0.0% -0.1% -0.2%
 Recently Frozen -0.2% -0.2% -0.3% -0.4%
 Ongoing Traditional -0.4% -0.4% -0.5% -0.6%
 Cash Balance -0.1% 0.0% -0.2% -0.2%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 11.1% 9.7% 8.3% 5.7%
 Recently Frozen 10.5% 9.2% 7.7% 5.2%
 Ongoing Traditional


8.6% 7.1% 4.6%
 Cash Balance 11.3%


8.5% 6.0%