Articles | August 17, 2021

Pension Plan Funded Status Drops Slightly as Interest Rates Decrease in Q2 2021

During the second quarter of 2021 (Q2), the funded status of the model pension plan examined in each issue of Prism dropped by 1 percentage point, to 99 percent, as illustrated in the graph below.

This issue of Prism explores the reasons behind this decrease, and what plan sponsors should examine in their own defined benefit plans. 

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G1 Q2 2021 Animation 882X600 081721 G1 Q2 2021 Animation 882X600 081721

Changes in the yield curve

High-quality corporate bond yields dropped during Q2 — the net result of a 30 basis-point decrease in U.S. nominal Treasury yields and credit spreads that were mostly flat.

Changes in the shape of the yield curve may have varying impact on plans’ liabilities based on their maturity. (For background on yield curves read our primer.)

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Segal Marco Advisors provides consulting advice on asset allocation, investment strategy, manager searches, performance measurement and related issues. 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. Segal Marco Advisors’ R2 Blog 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. Please contact Segal Marco Advisors or another qualified investment professional for advice regarding the evaluation of any specific information, opinion, advice, or other content. Of course, on all matters involving legal interpretations and regulatory issues, investors should consult legal counsel.

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