The Pension Pulse - What Plan Sponsors Need to Know Now

As a trusted advisor, we stand ready to guide Plan Sponsors through the complexities and everchanging landscape of pension plans. Below find valuable updates from our dedicated Defined Benefit Business Council.

Bank Failures and Impacts on Long Duration Assets

As many of you are aware, the failure of Silicon Valley Bank in mid-March led to a great deal of market volatility especially within the financial sector and many were worried about the risk of contagion. The fixed income universe was broadly affected by this bank failure, but interestingly long duration assets were more isolated compared to shorter duration assets.

This is in part due to the Long Corporate Index having a much lower exposure to the financial sector (16.6%) compared to the Bloomberg Intermediate Corporate Index (41.7%) as of March 31.

Source: Microsoft PowerPoint - IR+M LDI Monitor - March '23.pptx (incomeresearch.com)

Traditional Pension Plans

The story continues to be around the volatility of discount rates and the impact on funded statuses.

The average pension discount rate decreased 22 basis points this quarter to close March at 4.80% (see below chart).
The change in the discount rates was more exaggerated in shorter maturities than longer maturities.
The current discount rate represents a decrease of 71 basis points since the highs were reached in October 2022.
2023 provides a good reminder of how difficult it is to call rates and why a disciplined approach to de-risking is essential.

We continue to see interest in pension risk transactions including plan terminations and lump sum windows. According to Legal & General as of February 28, there are already several transactions in the pipeline which represent close to or over $1 billion and they are expecting 72% of all transactions to be full plan terminations.

If your plan is considering any type of pension risk transfer (including a lump sum window), please speak with your Consultant, who will be able to help guide you through this process.
Shown in the below chart is a sample of some of the considerations defined benefit Plan Sponsors should be discussing in addition to their investment strategy.

Cash Balance Plans

Cash Balance plans continue to be an area of growing interest for professional services firms. A modern Cash Balance plan can provide a way for highly compensated individuals to defer significantly more income into a qualified retirement vehicle compared to a 401(k) plan alone (~$200,000 + per year for certain individuals) without the organization facing the volatility that may come with a traditional pension plan. Investing plan assets in a manner that considers 415 limits and risk profiles of individual partners is essential and should be the foundation of all cash balance plans.

Municipal Plans

Milliman’s latest public pension funding index shows that the overall funded status for the 100 largest public plans decreased from 75.4% at the end of January 2023 to 74.5% at the end of March 2023 with the average plan return for March of 1.8%.

Source: Public Pension Funding Index April 2023 (milliman.com)

Webcast: First Quarter Capital Markets Update - Replay Now Available! Watch this webcast detailing how the first quarter of 2023 proved to be an exciting time for markets; including, wild swings in expectations for the Fed, a crisis of confidence for banking and how strong economic data drummed up the recession debate.
Webcast: Diagnosing and Treating Defined Benefit Plans for Healthcare Organizations - Replay Now Available! Watch Fiducient Advisors and October Three address some of the key pain points afflicting the defined benefit plans of many hospitals and healthcare organizations; including, characteristics of healthy and unhealthy pensions whether ongoing or frozen, how to evaluate the health of your plan and various "treatment" considerations.
Secure 2.0 for Defined Benefit Plans: Enhancements, Improvements and Clarification - Blog Now Available! Congress passed the Setting Every Community Up for Retirement Enhancement or SECURE Act 2.0 – a follow-up package to the initial SECURE Act which was passed in 2019. Although the majority of the legislation and associated headlines have focused on defined contribution plans, there are a small number of provisions that pertain to traditional and cash balance defined benefit plans.

Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Indices cannot be invested in directly. Unmanaged index returns assume reinvestment of any and all distributions and do not reflect our fees or expenses.

The Bloomberg US Long Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers that have maturities of 10 years or greater. The US Long Corporate Index is a component of the US Credit and US Aggregate Indices.

The Bloomberg US Intermediate Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes USD-denominated securities publicly issued by US and non-US industrial, utility and financial issuers that have between 1 and up to, but not including, 10 years to maturity. The US Intermediate Corporate Index is a component of the US Credit and US Aggregate Indices.

This report is intended for the exclusive use of clients or prospective clients (the “recipient”) of Fiducient Advisors and the information contained herein is confidential and the dissemination or distribution to any other person without the prior approval of Fiducient Advisors is strictly prohibited. Information has been obtained from sources believed to be reliable, though not independently verified. Any forecasts are hypothetical and represent future expectations and not actual return volatilities and correlations will differ from forecasts. This report does not represent a specific investment recommendation. The opinions and analysis expressed herein are based on Fiducient Advisor research and professional experience and are expressed as of the date of this report. Please consult with your advisor, attorney and accountant, as appropriate, regarding specific advice. Past performance does not indicate future performance and there is risk of loss.

Manage your preferences | Opt Out using TrueRemove™
Got this as a forward? Sign up to receive our future emails.
View this email online.

500 W. Madison Street Suite 1700 | Chicago, IL 60661 US

This email was sent to .
To continue receiving our emails, add us to your address book.

Subscribe to our email list.