US Pension Funded Status Rises to 89% in Q1

Gains fueled by 9% surge in asset returns during the quarter.

During the first quarter of the year, the funded status of the model pension plan examined by Sibson Consulting and Segal Marco Advisors rose two percentage points to 89% thanks to a 9% asset gain combined with a 6% increase in liabilities.

Following dismal returns during the fourth quarter of 2018, equities rebounded strongly during the first quarter of 2019. Developed international stocks and emerging market stocks were up sharply, but US stocks were even stronger, returning 14% for their best quarter in nearly a decade. Among US stocks, small cap stocks edged out large caps for the quarter, while growth topped value for the eighth time in the previous nine quarters.

“For the first time in seven years, global stocks had double-digit returns,” David Palmerino, vice president at Segal Marco Advisors, said in a release. “US stocks had their best quarter in almost 10 years, and developed international stocks had their best quarter in more than five years, which helped contribute to the increase in asset value.”

The firms reported that both domestic and international fixed-income returns were positive as the Federal Reserve didn’t raise rates at both first quarter meetings, maintaining the target range at 2.25% to 2.50%. Meanwhile, the 10-year US Treasury yield fell sharply during March and ended the quarter at 2.4%.

High-quality corporate yields also fell during the quarter, dropping 35 basis points as the result of a 25 basis point decrease in US nominal Treasury yields, and a 10 basis point decrease in credit spreads. And yields decreased significantly during the quarter, which resulted in a 6% increase in liabilities for the model pension plan.

Segal Consulting recommends plan sponsors examine their defined benefit plans for accounting and funding metrics.

“Mitigating the financial volatility of a pension plan is top of mind for plan sponsors now more than ever due to the uncertain future of the economy,” Stewart Lawrence, Segal’s national retirement practice leader, said in a release. “Plan sponsors should consider asset-liability modeling capabilities to help enhance risk mitigation.”

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