Pension Indicator Updated for November 30, 2019

Avoiding Coal in Your Stocking

By: Grant Guyuron, Senior Managing Director, Clearstead

The holidays are fast approaching, a festive time of year in which spirits should be bright. For pension plan sponsors, it has been a year of strong asset growth but also one in which liabilities have climbed due to lower rates. After November, spirits should be high. The question is, how do we finish the year to make sure we don’t end up with coal in our stockings?

Starting with November, it was a good month for plan sponsors. Liabilities were largely unchanged, up 0.16% as measured by the FTSE Pension Liability Intermediate Indexi; meanwhile, equities, credit, and many alternative strategies generated higher returns. This was particularly true of U.S. stocks, which returned 3.8% in the month as measured by the Russell 3000 Indexii . Plan sponsors with lower hedged ratios (growth, balanced, and LDI light models) were rewarded with returns ranging from 1.1% - 1.6%, indicating a potential increase in funded status of 1-1.5% in November.

So how do we prepare for the holidays and avoid coal in our stockings? The answer is to use recent changes in funded status as an opportunity to evaluate the plan’s position on the glide-path and be diligent about rebalancing. For example, it’s probably a good time to make sure that cash needed to fund benefit payments is set aside and that the portfolio’s weightings to equities and even long duration bonds are in-line with desired targets. Is the Plan at a trigger point on the glide-path? It might be a good time to check on that as a prudent risk management practice. Good discipline may make for a much happier holiday season.

Happy holidays from all of us at Clearstead and Findley!

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.

iSource: FTSE Pension Liability Index

iiSource: Bloomberg

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 1.3% 1.3% 2.9% 4.6%
 Recently Frozen -3.0% -2.9% -1.4% 0.2%
 Ongoing Traditional -7.2% -7.1% -5.7% -4.2%
 Cash Balance 0.2% 0.3% 1.9% 3.5%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) 1.6% 1.4% 1.1% 0.7%
 Recently Frozen 1.4% 1.2% 1.0% 0.6%
 Ongoing Traditional 1.3% 1.1% 0.8% 0.4%
 Cash Balance 1.6% 1.4% 1.2% 0.8%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -1.8% -0.2% 3.3% 7.5%
 Recently Frozen -6.6% -5.1% -1.8% 2.2%
 Ongoing Traditional
-11.5% -10.0% -6.9% -3.1%
 Cash Balance -3.0% -1.4% 2.1% 6.2%

Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure