There was good news for pension plan funded status in the third quarter of 2021, and even better news for the year so far, says a recent report.
Insight Investment maintains three model pension indices that reflect different approaches to hedging the same liability profile and illustrate the effect of hedging with core fixed income as opposed to long duration. They have what Insight Investment calls a “significant allocation to growth assets.”
The indices are the Large Company Aggregate Pension (LCAP) Index, which represent an asset weighted average of allocations held by S&P 500 companies’ plans; the Traditional Pension Index, which reflects plans that have not yet adopted liability-driven investment (LDI) and has no investments in long duration fixed income; and the LDI Pension Index, which reflects plans that have adopted LDI in the fixed income portion of their portfolios.
The overall pension funded status improved by 0.3% in the third quarter, says Insight Investment, and the funded status of each of the three indices improved to these levels:
- Traditional Pension Index: 93.8%;
- LCAP Pension Index: 100.2%; and
- LDI Pension Index: 102.3%.
Discount rates in the third quarter of 2021 rose by four basis points, says Insight Investment, and growth assets increased by 0.6%.
Year to Date
The overall pension funded status of the plans Insight Investment tracks have improved by around 10% for 2021. These findings are similar to those of October Three, which reported that by the end of November, the funding of the traditional pension plan they track had improved by 10% for 2021, and that of the plan conservatively invested had improved by more than 2%.
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