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Interest Rates – Where to From Here? 2019 Update

In May of this year, we released our view on the current state of interest rates including the specific drivers that could affect rates through the end of 2019. Over the past seven months, a lot has happened with the various forces that have influenced interest rates globally. This quick update summarizes those forces and provides our thoughts on what might happen based on where we are today.

Interest Rates – Where to From Here?

Understanding the dynamics that drive interest rates is critical to understanding the level of current rates, why they have changed in the past, and how they might change in the future. This understanding allows investors and pension sponsors to make informed decisions on how to deploy their bond portfolios and what to expect from their long-term, interest rate-sensitive liabilities.

A Powerful 3 Step Strategy: Increase Expected Return on Pension Assets at the Same (or Lower) Level of Funded Status Risk

It is possible for pension plan sponsors to increase expected returns on assets by 100 to 300 basis points (1-3%) per year for the same or lower funded status risk. The process and steps are spelled out below. Follow along and you’ll see how to increase expected returns, potentially cutting years off of the time required to reach full funding while also decreasing the pension expense reported in the financial statements.

Double Digit Equity Returns 2019 YTD — how do you protect your equity position for the rest of the year?

With both international and US equity markets up approximately 15% year-to-date reversing most of the 4th quarter 2018 correction, many plan sponsors are asking themselves “should we consider any changes to protect the equity gains that we have…

Replicating Private Equity

Private Equity is illiquid and challenging to benchmark. Many investors use “S&P 500 +3%” in order to compare performance in the absence of an observable, investable asset. This paper describes a methodology for creating a private equity proxy or replication strategy using derivatives.

Pension Investing – Next Generation of Glide Paths

Pension plan sponsors, especially those with frozen pension plans, have spent significant time deciding on the most appropriate balance between growth (return seeking/equities) and hedging (liability matching/long-term bonds) assets to meet their objectives. For most, the ideal goal is to fully fund the pension plan through a balance of investment performance, cash contributions and a rising interest rate environment while not subjecting themselves to higher than desired funded status risk.

Pension De-Risking – The Next Evolution in Reducing Funded Status Risk

There has been an evolution of pension plan de-risking over the years, giving us 3 different versions. Many plan sponsors have avoided moving more quickly to de-risk using strategies 1-3 because of the negative impact that each of these can have on a sponsor’s reported profits as well as expected cash contributions to close a deficit. We are now poised for de-risking version 4.0, in which plan sponsors will utilize modern risk management tools to significantly reduce funded status volatility while maintaining expected returns.

News

River FOURcast: January 2020

River FOURcast: January 2020

2019 turned out to be a fruitful year for equities with the S&P500 achieving record highs and delivering more than a 28% return for the year. However, 2019 returns were boosted by a low starting point at the beginning of the year following the 2018 “Christmas Crunch”.

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Retirement Update – January 2020

Retirement Update – January 2020

With discount rates up slightly and equities posting another strong month, December was a pleasant end to a turbulent 2019 for pension sponsors. Most plans will have seen modest improvements in funded status in December, with both discount rates and equity investments providing light tailwinds. But the full year tells a different story; while the financial headlines were all about the strong stock market in 2019, the decline in discount rates was just as significant; many plan sponsors will find they barely made up any ground in 2019, despite strong equity returns.

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River FOURcast: January 2020

River FOURcast: December 2019

We believe we are in the Stable phase of the market; we saw reduced equity volatility in November compared to the past few months, but the lower liquidity around the Christmas period could lead to a return of some volatility.

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Pension Plan Annuity Purchase Update – Q3 2019

Pension Plan Annuity Purchase Update – Q3 2019

Market Activity Source: LIMRA Secure Retirement Institute Total pension buyout sales surpassed $7.7 billion in the third quarter of 2019, an increase of 23% compared to the third quarter of 2018. A total of 111 buyout contracts were sold in Q3, bringing 2019 sales to...

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Retirement Update – January 2020

Retirement Update – December 2019

Long-term corporate bond yields stayed relatively flat for the month and have remained relatively flat since September. During November, increased confidence in a China/US trade agreement pushed US stock prices higher. With liabilities discount rates remaining level and an increase in US equity markets, most plans should have seen a slight increase in funded status for the second month in a row.

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Interest Rates – Where to From Here? 2019 Update

Interest Rates – Where to From Here? 2019 Update

In May of this year, we released our view on the current state of interest rates including the specific drivers that could affect rates through the end of 2019. Over the past seven months, a lot has happened with the various forces that have influenced interest rates globally. This quick update summarizes those forces and provides our thoughts on what might happen based on where we are today.

read more
New Mortality Tables Released – What it Means for Plan Sponsors

New Mortality Tables Released – What it Means for Plan Sponsors

The Society of Actuaries (SOA) published new mortality base tables and a new mortality improvement scale in late October. These new releases are likely to result in relatively small changes to plan sponsor income statements and balance sheets, and will most likely start to impact minimum contribution requirements in 2021; in most cases, these small changes will be favorable to plan sponsors.

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Retirement Update – January 2020

Retirement Update – November 2019

Despite the Fed lowering rates in October, long-term corporate bond yields stayed relatively flat for the month. At the same time because of a relative calm on the geopolitical front, equity returns posted a decent month led by international and emerging market stocks. When taken together, most plans that have some return seeking assets in their portfolio would have seen funded status increases over the month.

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Improving Expected Returns: Corporate Defined Benefit Plans

Improving Expected Returns: Corporate Defined Benefit Plans

Many corporate defined benefit pension plans utilize interest rate derivatives and/or Treasury STRIPS to manage interest rate risk. They also typically have large allocations to active fixed income managers as part of their liability-matching bond portfolios. Conversely, many plans invest in passive equity strategies as they do not believe that alpha can be reliably obtained by long-only equity managers.

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