August brought mixed results for private-sector pension plans, say several reports. They note that there was progress by some measures, but regression by others.
There was some good news, according to Matthew Klein, Vice President & Senior Consulting Actuary at USICG, who in the Pension Indicator says that ground lost in July was made up in August. He attributes that result to changes in bond yields. “Yields that were declining during July did an about-face in August and generally are very close to June 30 readings,” says Klein.
Similarly, Klein says that Moody’s Corporate AA rate stood at 4.49% on June 30, 4.20% on July 31, and went back up to 4.54% on August 31.
Stressing more of an indeterminate midsummer result is October Three, which says that pension finances were mixed during August. This, they say, is because higher interest rates offset the impact of falling stock markets.
For good measure, October Three says that the model pension plans it tracks showed only slight, but also divergent, changes in August. The finances of the traditionally invested plan it tracks improved by less than 1% in August, while those of the more conservatively invested plan slipped by less than 1%.
Even the factors affecting pension plans roughly balanced out, according to October Three. They report that interest rates rose 0.4% in August, which they say produced negative returns for bonds. At the same time, they say that corporate bond yields rose 0.4% during August, and because of that pension liabilities fell 3%-4%. And Fully Vested reports that liabilities decreased by 4.5% among plans they measure, says Sydney Berman.
Funded Status
Reports also varied on how private-sector pension plans’ funded status fared in August.
The Aon Pension Risk Tracker says that the S&P 500 aggregate pension funded status fell from 93.6% to 93.0% during August.
But the Pension Indicator reports that the funded status of active plans and recently frozen plans they measure improved in August. They also report that the funded status of cash balance plans and plans frozen for several years also improved, but not in as robust a manner; in addition, in both categories, the funded status of those whose investments were liability-driven dropped very slightly.
Similarly, funded status improved in August from 98.3% to 99.0% among plans followed by Fully Vested. Berman adds that Sweta Vaidya, North American Head of Solution Design for Fully Vested, attributed the improvement to liability gains that more than counteracted weak equity returns.
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