Articles | October 25, 2022

High Interest Rates Raise Model Plan’s Funded Status

During the third quarter of 2022, the funded status of the model pension plan examined in each issue of Prism rose by 4 percentage points, to 104 percent, as illustrated in the graph below.

This increase in funded status is primarily attributable to a 10 percent decrease in liabilities, partially offset by a 7 percent decrease in assets.

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G1 Q3 2022 Web Ol G1 Q3 2022 Web Ol

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

Equity and fixed income returns were again very poor across the board during Q3, as September was the worst month of a very bad year for global investment markets.

U.S. equity markets are now down nearly 25 percent for the year, following another 4 percent loss in Q3. Developed international and emerging market equities also performed very poorly and underperformed U.S. equities as the strong U.S. dollar grew into a headwind for international markets.

Fixed income returns were also poor again this quarter, both domestically and internationally, as interest rates continue their upward trajectory.

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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3-Point Rise in Model Pension Plan's Funded Status

In Q3 of 2023, the funded status of Segal's model private sector single-employer pension plan rose 3 points to 108%. Learn why in the latest Prism.

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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