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Pension Funding Springing Forward

Practice Management

The season and the clocks are not the only things that advanced in March, according to recent reports that show that private-sector pension plan funding warmed. 
Pension plan funding ratios and funded status improved for the month as well as for the first quarter, according to actuarial firm October Three and consulting firm NEPC. Both track hypothetical defined benefit plans; NEPC a total return plan and liability-driven investment (LDI) plan, and October Three one that is invested in a conservative manner, and another that is invested in a more traditional way.  

The improvement in the funded status of private-sector pension plans in general was “significant,” said NEPC, and that of the total-return plan it tracks “skyrocketed.” October Three expressed a similar sentiment, saying that “Pension finances enjoyed another good month in March” and that those results capped “the best quarter in memory.”

Both showed similar improvements in March, as well as the first quarter of 2021: higher gains for the plans whose funds are more aggressively invested, and more modest gains for those for which investments are more conservative. 

Improvement in March and First Quarter of 2021

 

Plan Investment/Firm Plan  Improvement Over February Improvement, Q4 2020-Q1 2021
Aggressive      
October Three Traditional investment +4% +11%
NEPC Total return +5.3% +12.7%
Conservative      
October Three  Conservative investment +1% +2%
NEPC Liability-driven investment +2.2% +4.3%

 

NEPC attributed the gains in the first quarter to “a sharp rise” in Treasury rates, as well as positive equity returns. October Three said that the health their plans showed was due to higher interest rates, and that the stock markets’ performance played a “supporting role” in the improvements.

October Three said that liabilities fell 2%-3% in March and 7%-12% for the first quarter, and attributed that to growth in corporate bond yields. NEPC also reports that liabilities fell, and said that was part of the reason for the improvement in funded status.