Pension Indicator Updated for September 30, 2018

Time to Hibernate

By: Grant Guyuron, Senior Managing Director, Hartland

Autumn is officially here and the weather is starting to turn.  Leaves are changing colors and already beginning to fall.  For bears and pension plan sponsors alike, it might be time to start thinking about hibernation.

No, I do not mean that plan sponsors should find a cozy cave to sleep in during winter months.  The hibernation concept I am referring to is one that de-risks a pension plan without transferring the liability to an insurer.  The concept is that the plan sponsor retains the assets and liability, but is well-funded and invests in a liability-driven approach such that the assets mimic the liability.  In such a situation, funded status volatility is minimized, and the plan sponsor is mostly focused on administration of the plan (i.e. paying benefits).

September was favorable from a liability perspective as rates jumped 10-12 bps according to the FTSE Pension Liability Indices ; these changes indicate a reduction in pension liabilities of 1.1% - 1.7% in the month.  On the asset side, returns were mixed.  The S&P 500 was up 57 bps, the MSCI EAFE Index (developed international stocks) was up 87 bps, and the Bloomberg Barclays U.S. Corporate High Yield Index returned 56 bps. U.S. small cap stocks (Russell 2000) and MSCI Emerging Markets (EM equities) returned -2.41% and -0.53%, respectively.   Thus a balanced portfolio for a frozen pension plan likely saw improved funding status in the month.

For the year, liabilities are down 4.6% - 7.5% according to the FTSE Pension Liability Index1, depending on their duration.  Additionally, contribution activity in September was exceptionally high among plan sponsors due to tax benefits that expired on 9/15/18.  If returns are even flat for the year, many plan sponsors may be in a position to de-risk.  Hibernation may not be the answer for everyone, but it is certainly something to consider in the evaluation process, and it’s never too early to start preparing.


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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) 7.1% 5.8% 3.2% 0.0%
 Recently Frozen 9.1% 7.7% 5.1% 1.8%
 Ongoing Traditional 11.3% 9.9% 7.3% 3.9%
 Cash Balance 7.7% 6.3% 3.8% 0.5%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 0.8% 0.5% 0.3% 0.1%
 Recently Frozen 1.1% 0.9% 0.7% 0.4%
 Ongoing Traditional 1.5% 1.3% 1.1% 0.8%
 Cash Balance 0.9% 0.6% 0.4% 0.2%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) 12.2% 10.6% 8.1% 4.7%
 Recently Frozen 12.9% 11.2% 8.8% 5.3%
 Ongoing Traditional
13.7% 12.0% 9.5% 6.0%
 Cash Balance 12.6% 11.0% 8.5% 5.1%