Pension Indicator Updated for January 31, 2020

Rates Retreat Amidst Coronavirus

By: Grant Guyuron, Senior Managing Director, Clearstead

January 2020 started out very strong for underfunded pension plan sponsors. Equity markets reached new highs, rallying on the optimism surrounding phase one of a U.S. and China trade deal and higher expected corporate profits. Then, in the midst of the Chinese New Year, the Coronavirus began to spread and created meaningful market instability. Equity markets sold off, particularly in non-U.S. emerging markets, and interest rates fell as investors rushed to the safety of U.S. Treasury bonds.

Pension plan sponsors experienced a volatile month in which long corporate rates declined from 3.22% to 2.91% . This decline in rates translates into a liability increase of 6.84%i! Meanwhile, plan sponsors may have had asset returns that were flat to modestly positive (3.55% for the LDI model). Thus, a plan’s funded status may have declined between 0% and 7% in the month depending on their asset allocation.

While equity markets have rebounded so far in February, interest rates have remained stubbornly low. Months like this highlight the need to continuously reevaluate positioning on the glide path, organizational objectives, and risk tolerance.

Our thoughts are with all the individuals and families dealing with this horrible virus.

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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.

iFTSE Pension Liability Index

Year to Date Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
Frozen (for several years) -3.8% -3.0% -1.8% -0.4%
 Recently Frozen -5.1% -4.2% -3.1% -1.7%
 Ongoing Traditional -6.3% -5.5% -4.4% -2.9%
 Cash Balance -4.1% -3.2% -2.1% -0.6%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -3.8% -3.0% -1.8% -0.4%
 Recently Frozen -5.1% -4.2% -3.1% -1.7%
 Ongoing Traditional -6.3% -5.5% -4.4% -2.9%
 Cash Balance -4.1% -3.2% -2.1% -0.6%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -0.2% 0.9% 3.7% 6.7%
 Recently Frozen -4.7% -3.6% -1.0% 1.9%
 Ongoing Traditional
-9.2% -8.1% -5.6% -2.9%
 Cash Balance -1.3% -0.1% 2.6% 5.5%


Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure