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DB Financing Flat in June, but Still Up for 2021

Practice Management

Private-sector pension plan finances were relatively static in June, say recent reports; nonetheless, the news for 2021 overall remains good—for now. 

Steady in June

October Three, which tracks two hypothetical defined benefit plans—one that is invested in a more traditional way and another invested in a conservative manner—reports that in June, pension finances either held steady or dropped slightly. They attribute the static performance to falling interest rates. 

More specifically, the finances of the plan invested more traditionally dropped 1% in June, while those of the more conservatively run plan were largely unchanged from the month before. 

Both assets and liabilities grew for both plans in June, says October Three, but assets for both were higher than liabilities. 

But Still, Overall Progress

Despite the June doldrums, October Three says that for the first half of 2021, both plans fared well. The finances of the plan invested more traditionally may have dropped slightly in June, but they are up by more than 10% for the year so far. The finances of the more conservatively run plan are up by nearly 3% for 2021 overall. 

Put another way, the actuarial firm says that both plans have funded ratios above 100%: The traditional plan is above 110%, and the conservative plan is around 103%. Consulting firm NEPC, which tracks a hypothetical total return plan and a hypothetical liability-driven investment (LDI) plan, said that in the second quarter funded status improved “modestly” for corporate pension plans that focused on hedging interest rate risk. NEPC reported that the funded status of the LDI-focused plan improved by 2% in Q2, whereas that of the total return plan dropped by 1.9%.

For 2021, for both plans that October Three monitors, liabilities fell in the first quarter but rose in the second; however, there was divergence regarding assets. The traditional plan’s assets have grown throughout the year, while those of the conservative plan fell in the first quarter but grew in the second. And for both assets have been consistently higher than liabilities throughout the year. NEPC similarly reports that liabilities grew for both plans in the second quarter.