Pension Finances Slipped in November, But Good YTD

Pension finances slipped slightly in November by several measures but the overall results for the year still are positive, says a recent report. 

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 the finances of both fell in November, but only a little. The traditional plan lost almost 2%, and the more conservative plan lost 1%. This is a reversal that wipes out the progress October Three had reported in October, when they said the traditional plan showed a 2% improvement and the more conservative plan gained 1%. 

October Three says that stock market losses are to blame for the November results. 

Similiarly, Milliman reports that in its 100 Pension Funding Index—which measures the health of the 100 largest corporate defined benefit plans—the funded ratio fell from the October level of 98.1% to 97.6% in November. In dollars and cents, that spelled an $11 billion fall. 

Pension Plan Liabilities

October Three reports that in November, pension liabilities grew by less than 1% and are down overall for 2021 by 1%-3%. 

Annuities

October Three also tracks two annuity plans in order to gauge what is happening concerning annuities: one whose participants are all retirees with a duration of seven years, and another whose participants are retirees (70%) and deferreds (30%) with a duration of 15 years. They report that in November, annuity purchase costs decreased 0.35% for the first plan and increased 1.46% for the second. Annuity purchase interest rates were the converse in November, rising for the first plan and falling for the second.

Still Good News for 2021 Overall

While October Three found that the finances of the plans they track slipped in November, overall they still have made progress for the year. They say that the traditional plan is still up by 10% for 2021, and the conservative plan is up by more than 2% for 2021 so far. 

Pension finances “improved markedly” in the first quarter of 2021, October Three says, and the overall improvement for the year has held. “Despite the persistence of the pandemic, it is clear that the outlook for plan sponsors in 2021 is remaining positive,” they say, adding that generally, plan funding status has improved in 2021 and that annuity purchase prices have dropped.

October Three says that stock market returns have been “a huge factor” in the improvements in 2021.