DB Funded Status Feels January Chill

The funded status of pension plans slipped slightly in January, according to new reports. 

Investment manager Investment Insight reports that overall funded status dropped by 0.7 percentage points from 95.6% in December to 94.9% in January. However, even with the slight drop, the January figure is still above that of November. 

Pension Funded Status

In the fourth quarter, Investment Insight, which maintains two model pension indices—one that is traditionally invested and one that is based on liability-driven investment (LDI)—reported that the funded status of the traditional index grew by 3.1%, and that of the LDI index rose by 4.3%. 

Similarly, October Three, which also tracks a traditionally invested plan and a more conservatively invested plan, reports slight changes in funded status in January. Their traditional plan gained less than 1%, while their conservatively invested plan dropped slightly. 

Why?

Fueling the January decline were a 4.7% drop in assets and a 4% decline in liabilities, Invest Insight says, which it attributed to the performance of equities and growth assets. The overall funded status drop was not worse because those drops were mitigated by rising discount rates. They say that the average discount rate in January was 33 basis points higher than that of December; in the last month of 2021, it stood at 3.08% and at 3.41% in January 2022. 

October Three likewise reported that both plans it tracks showed declines in assets and liabilities in January. The traditional plan's assets fell by 4 percentage points and liabilities fell by approximately 4.3 percentage points; those of the conservatively invested plan fell by approximately 3.4 percentage points and 3.2 percentage points, respectively. 

The January discount rates stand in contrast to those that Investment Insight reported in the fourth quarter of 2021. They said that in the fourth quarter, discount rates fell by 1 basis point, while growth assts increased by 6.8%.