Articles | August 2, 2023

5-Point Jump in Model Pension Plan’s Funded Status

During the second quarter (Q2) of 2023, the funded status of the model pension plan examined in each issue of Prism rose by 5 percentage points, to 105 percent, as illustrated in the graph below.

This increase in funded status is attributable to a 3 percent increase in assets and a 1 percent decrease in liabilities.

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Change in Assets, Liabilities and Funded Ratio

Change in Assets, Liabilities and Funded Ratio

Source: Prism Review of Second Quarter 2023

Aspects of investment performance that contributed to the model plan’s rise in asset value

Both domestic and international equities had positive single-digit returns in Q2, with U.S. equities outperforming both developed international and emerging market equities.

Emerging market equities were the poorest performer among the three, hampered by Chinese equities that are still struggling during the country’s slow recovery from the COVID-19 pandemic. Domestically, growth stocks outperformed value, and large cap stocks outperformed small caps.

Fixed-income returns were modestly negative both domestically and internationally, with interest rates ticking higher during the quarter.

Examine your own DB plan’s experience

Plan sponsors should examine changes in their own DB plans’ assets, liabilities and funded ratios from the vantage point of both accounting and funding metrics.

We can help employers project their DB plans’ funded ratios with a complete view of the range of a plan’s possible future statuses, presenting early warning signs of potential challenges.

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The information and opinions herein provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This article and the data and analysis herein is intended for general education only and not as investment advice. It is not intended for use as a basis for investment decisions, nor should it be construed as advice designed to meet the needs of any particular investor. On all matters involving legal interpretations and regulatory issues, investors should consult legal counsel.

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