Pension Indicator Updated for December 31, 2018

Holy Correction, Batman!

By: Matthew Klein, Principal, Findley

Watching the equity markets in December reminded me of the cartoony old Batman show with the late Adam West.  Pow! The Dow is down 300.  Biff! The S&P is down another 400.

If you are reading this, you are likely very aware that the domestic equity markets had their worst December in decades.  Both the Dow and the S&P 500 had their worst year since 2008.  But in the world of pensions, the equity exposure is only half the battle.

The second punch of December was the impact to U.S. corporate bond yields.  While high-quality U.S. corporate bond yields are still up around 60 basis points (bps) on average for the year, they fell over 20 bps during the month of December as the typical “flight to quality” dynamic played out (Source: FTSE Pension Liability Index). For the year then, a 60 bps increase in discount rates will yield around 7-9% decrease in liability.  Most plan sponsors are looking at a loss in the equity market of at least as much as the savings on the liability side.  After spending the first 11 months in positive territory on the Pension Indicator, most of our year-end results finished on the wrong side of the ledger for 2018.  Only immature plans with long tails had a chance to finish better than where they started the year.

What’s to come in 2019?  Only time will tell.

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.

Year to Date Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -2.4% -1.9% -2.6% -3.2%
 Recently Frozen -0.3% 0.2% -0.5% -1.2%
 Ongoing Traditional 2.1% 2.6% 1.9% 1.2%
 Cash Balance -1.8% -1.4% -2.0% -2.7%
Month-over-Month Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -6.8% -5.3% -3.5% -1.2%
 Recently Frozen -7.6% -6.1% -4.3% -2.0%
 Ongoing Traditional -8.5% -7.0% -5.2% -3.0%
 Cash Balance -6.9% -5.5% -3.7% -1.4%
12-Month Change Investment Mix 
Plan TypeAggressiveBalancedLDI LiteLDI
 Frozen (for several years) -2.4% -1.9% -2.6% -3.2%
 Recently Frozen -0.3% 0.2% -0.5% -1.2%
 Ongoing Traditional
2.1% 2.6% 1.9% 1.2%
 Cash Balance -1.8% -1.4% -2.0% -2.7%

FrozenManyYears1118

RecentlyFrozen1118

Ongoing1118

CashBalance1118

Disclosure