Pension Indicator Updated for March 31, 2020

Nowhere to Hide

By: Grant Guyuron, Senior Managing Director, Clearstead

March was a difficult month for all of us. COVID-19 has become a pandemic and is spreading quickly throughout the world. At the time of this article’s writing, we are now over 1.3 million confirmed cases globally, with over 70,000 deaths. In an effort to contain the spread of this virus, governments, corporations, and individuals have taken unprecedented steps. While necessary to protect everyone from the health crisis, these important measures have impacted and will likely continue to meaningfully impact the economy in a negative way. Amidst significant volatility in both equity and bond markets, the Federal Reserve stepped in to provide liquidity via an asset purchase program (unlimited) while dropping the Federal Funds Rate to 0 – 0.25%. Additionally, the Federal government passed the CARES Act, which will provide $2 trillion of fiscal stimulus to support individuals and businesses.

Markets began reacting to the potential fallout from COVID-19 in late February, which continued throughout the month of March as equity and credit markets sold off significantly. The combination of Fed action and the announcement of the CARES Act help markets recover losses during the third week of March, but it was an extremely difficult month nonetheless. In March, U.S. equity markets (as measured by the Russell 3000 Index) returned -13.8%, High Yield bonds (Bloomberg Barclays U.S. Corporate High Yield Index) returned -11.5%, and long duration fixed income (Bloomberg Barclays Long Government/Credit Index) returned -3.0%. Essentially, there was nowhere to hide except for cash, which now has 0% yield..

For plan sponsors, the impact of severe market movements on funded status varied based on the status of the plan and on how the plan was invested. Plans that fared best in March were open/accruing benefits but have a large allocation to high quality long duration fixed income (this is a select group). For example, such ongoing plans saw liabilities decrease by approximately 7.6% in March, whereas old frozen plans experienced a 4.8% reduction in liability values. Plans with a more growth-oriented asset allocation strategy (i.e. more public equity) could have experienced larger asset declines (approximately -10%) than those with more of an LDI focus (approximately -7%).

For the year, most plan sponsors have experienced a reduction in funded levels unless the plans have been fully immunized. If conversations have not occurred already, it is still a good time to reassess your investment and risk-transfer options.

We again want to convey our best wishes and good health to all during this challenging time.

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

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For more information on the development of the Pension Indicator, please see our Disclosure document.

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 TypeGrowthBalancedLDI LiteLDI
Frozen (for several years) -15.3% -11.4% -8.2% -4.5%
 Recently Frozen -15.9% -12.0% -8.8% -5.1%
 Ongoing Traditional -16.4% -12.5% -9.3% -5.7%
 Cash Balance -15.3% -11.4% -8.2% -4.5%
Month-over-Month Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -5.7% -3.8% -3.3% -3.2%
 Recently Frozen -4.5% -2.6% -2.0% -1.9%
 Ongoing Traditional -3.2% -1.3% -0.7% -0.6%
 Cash Balance -5.3% -3.5% -2.9% -2.8%
12-Month Change Investment Mix 
Plan TypeGrowthBalancedLDI LiteLDI
 Frozen (for several years) -12.0% -7.8% -3.3% 1.6%
 Recently Frozen -14.7% -10.5% -6.2% -1.4%
 Ongoing Traditional
-17.3% -13.3% -9.1% -4.5%
 Cash Balance -12.5% -8.3% -3.9% 1.0%


Frozen Plan 7 31

Recently Frozen Plan 7 31

Ongoing Plan 7 31

Cash Balance 7 31

Disclosure