The funded status of the model pension plan examined by Sibson Consulting and Segal Marco Advisors dropped by 8 percentage points to 87 percent in the fourth quarter of 2018, as illustrated by the red line in the graph below.
The funding decrease is a result of a 7 percent asset loss, compounded by a 2 percent increase in liabilities. This marks the first drop in the plan’s funded status, after four consecutive quarters of increase.
“While global bonds performed well, domestic stocks had their worst quarter in more than five years; U.S. stocks fell nearly 10 percent in the month of December alone,” said David Palmerino, vice president with Segal Marco Advisors. “These and other aspects contributed to the 7 percent change in asset value.”
National Retirement Practice Leader Stewart Lawrence suggests that plan sponsors examine changes in their own defined benefit plans for both accounting and funding metrics: “Any change in either the shape or level of the yield curve, could have a different impact on liabilities for plans with different maturities,” he noted. “Further, plan sponsors should be sure that they have explored the merits of mitigating the volatility of the plan’s funded status through utilization of various de-risking techniques.”
To speak with one of our consultants about the model plan, and how it may inform decision-making for employers that have a pension plan, please contact Erin Burns.
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Sibson Consulting (www.sibson.com), another member of The Segal Group, provides strategic human resources solutions to corporate and non-profit employers and professional service firms. Sibson's services include benefits, compensation, human capital management and change management consulting.
Segal Marco Advisors (www.segalmarco.com), a member of The Segal Group, provides innovative, client-driven consulting advice, outsourcing solutions, proxy voting and corporate governance. Clients include joint boards of trustees administering benefit plans under the Taft-Hartley Act, state and local governments, corporations, non-profit organizations, endowments and foundations. The firm works with financial services firms through Rogerscasey, a Division of Segal Advisors, and with Canadian clients through Segal Rogerscasey Canada.
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