Pension Indicator
Pension Indicator Updated for October 31, 2023
The Power of Bond Markets in Pensions
By: Matthew Klein, Vice President & Senior Consulting Actuary, USICG
The last three months have been a litmus test for how well someone understands how pension funding works. Many US equity markets, international equity markets, and fixed income returns are negative since July 31. So it stands to reason pension funding must be falling as well, right? In the famous words of Lee Corso, “Not so fast my friend.”
While bond prices may be down, bond yields are up- significantly. Based on the models used for the Pension Indicator, the discount rate used for our four model plans are all up around 100 basis points. The duration of our model plans ranges from 9 to 17. Remembering that duration is a measure of the sensitivity of price due to interest rate fluctuations, our model plans have gained somewhere between 9% and 17% from a reduction in liability. So while assets are down, the gain from the liability side of the equation has kept our charts even to positive for the Growth and Balanced portfolios since July 31st. As mentioned in the commentaries of the last two months, these dynamics continue to fuel significant de-risking activities even as equity markets fall.
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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 (Net) | ||||
|---|---|---|---|---|
| Plan Type | Growth | Balanced | LDI Lite | LDI |
| Frozen (for several years) | 7.2% | 5.2% | 2.3% | -1.2% |
| Recently Frozen | 10.3% | 8.3% | 5.3% | 1.7% |
| Ongoing Traditional | 14.0% | 11.9% | 8.9% | 5.1% |
| Cash Balance | 8.2% | 6.2% | 3.3% | -0.3% |
| Month-over-Month Investment Mix (Net) | ||||
| Plan Type | Growth | Balanced | LDI Lite | LDI |
| Frozen (for several years) | 0.1% | -0.1% | -0.8% | -1.5% |
| Recently Frozen | 1.3% | 1.0% | 0.4% | -0.3% |
| Ongoing Traditional | 2.7% | 2.5% | 1.8% | 1.1% |
| Cash Balance | 0.5% | 0.2% | -0.4% | -1.1% |
| 12-Month Change Investment Mix (Net) | ||||
| Plan Type | Growth | Balanced | LDI Lite | LDI |
| Frozen (for several years) | 5.4% | 3.9% | 2.8% | 1.1% |
| Recently Frozen | 7.0% | 5.4% | 4.3% | 2.5% |
| Ongoing Traditional |
8.8% | 7.2% | 6.1% | 4.3% |
| Cash Balance | 6.0% | 4.4% | 3.3% | 1.6% |
Please click on the "Historical" tab at the top of the website for longer time periods, including Five-Year and Return Since Inception (1/1/2016).
USI Consulting Group (USICG) has been delivering retirement consulting and administration services to organizations and their participants for over 40 years. We offer innovative solutions to mitigate risk, stay compliant and protect plan sponsors and fiduciaries with deep commitment to client satisfaction and delivering superior results.
Clearstead is an independent financial advisory firm serving wealthy families and leading institutions across the country. As a fiduciary, it provides wealth management services and investment consulting to enable clients to meet their financial objectives, achieve their aspirations, and build strong futures.