Mixed Harvest for Private-Sector Pension Plans in October

The private pension plan cornucopia was half full or half empty in October, depending on one’s perspective. Analyses were mixed on how the plans fared. 
 

Willis Towers Watson, which tracks a hypothetical pension plan invested 60% in equities and 40% in fixed-income funds, reported that its plan grew by 1.1 percentage points in the pension index by which it gauges its performance. 

Plan Funding 

October Three, which tracks two hypothetical plans—one traditionally invested and one conservatively invested—reports that the funded ratio of both slipped by a fraction of 1% in October. 

Wilshire, too, showed a slight change in funded status for the top 100 U.S. corporate pension plans in October, but on the plus side. It estimates that there was a light improvement in the aggregate funded ratio for U.S. corporate pension plans of 0.6 percentage points in October. The aggregate figures it reports are an estimate of the combined assets and liabilities of pension plans S&P 500 companies sponsor with a duration in line with the FTSE Pension Liability Index – Short.

In like manner, Insight Investment reports that the funded status for the top 100 U.S. corporate pension plans improved from 107.5% to 108.1%, a change of 0.6 percentage points. Agilis, too, says that in October private pension plans’ funded status either remained static or slightly improved. The firm attributed that result to its finding that drops in liabilities were slightly greater that declines in assets. 

Assets

Stock market losses drove a slight drop in assets for the plans October Three tracks. They report that a diversified stock portfolio lost 3% in October and that bond yields rose by a minute 0.3%. Overall, assets fell 3% in October for the traditional plan and fell 2% for the conservative plan. 

Other analysts joined in reporting October losses. Insight Investment said that for the top 100 U.S. corporate pension plans, assets fell by 3.8% in October; similarly, Wilshire said that assets fell by 3.4%. And Agilis, too, said that in October equities and fixed income accounts lost ground.

Willis Towers Watson also reported negative investment returns. Overall, it says, the portfolio for the plan it tracks lost 2.4% in October. 

Looking more closely, Willis Towers Watson says that the equity portion of the benchmark portfolio it gauges lost 3.1% in October, and its fixed income investments lost 1.3%. It said that the losses in long Treasury bonds and long corporate bonds were the most significant among fixed-income returns. 

Liabilities

While October Three said that assets fell in its namesake month, they also report that liabilities fell 2%-4%. Insight Investment similarly reported that liabilities fell by just over 4%, and Wilshire reported a drop in liabilities of 4%. Agilis said that pension liabilities fell by 3.5%-6%. Willis Towers Watson, too, found that liabilities fell. 

Agilis and Willis Towers Watson attributed the drop in liabilities to increases in discount rates, an effect Agilis Managing Director Michael Clark called “significant.” Said Clark, “This significant change in discount rates has an equally significant effect on pension liabilities as most liabilities tend to move anywhere from 8% - 14% depending on the nature of the pension plan benefits and demographics.”

Wilshire reported a drop in liabilities in October as well, and said that was part of the explanation for the improvement it saw in the funded ratio.