November Pension Funding Not a Horn of Plenty

November may be a month that celebrates plenty, but it was a bit spare this year — at least as far as pension plan funding is concerned. 

Recent reports that track hypothetical pension plans report that assets increased in November, but that those gains were at least balanced if not slightly exceeded by growth in liabilities. November put the brakes on the more robust improvements October and September had yielded. 

Funded Status 

October Three, which tracks a traditionally invested plan and one invested in a more conservative fashion, reports that the former declined in November, but only by less than 1%; the more conservative plan improved, but by less than 1%. Insight Investment reports that the funded status of the model plan it tracks declined a bit more — 1.4 percentage points. 

But despite the anemic results for November, the longer-term trends remain more positive. October Three says that the traditionally invested plan it tracks still shows 10% growth for 2022, and the conservative plan is up for the year too, but by  less than 1%. And Insight Investment says that even though the model plan it tracks lost some ground in November, it still stands at 104.1% funded.

Sweta Vaidya, Head of Solution Design at Insight Investment, in a press release attributed the drop that they reported to declines in the pension discount rate. “The driving factor was a 55 bps decline in the pension discount rate, which caused liabilities to increase noticeably,” she said. They report that the average discount rate fell from 5.61% in October to 5.05% in November, which they said is largely due to the change in the risk-free rate.

October Three attributed the mixed results it found to lower interest rates offsetting the impact of higher stock markets. 

Assets vs. Liabilities 

October Three says that its model plan with a traditional 60/40 portfolio gained more than 5% during November, and the conservative 20/80 portfolio gained 5%. Pension liabilities grew by 5%-8%, they note. Similarly, Insight Investment shows comparable gains in assets, 5.1%, and an increase in liabilities of 6.5%. 

October Three adds that the November results for assets and liabilities reflect the long-term trends for 2022. Assets, they say, are down for the traditional plan by 15% for the year, and by even more — 17% — for the conservative plan. On the other hand, liabilities are down 16%-27% for 2022.