Monthly Retirement Update

Retirement Update – August 2020

Aug 7, 2020 | Defined Benefit, Industry Updates

Key Takeaways:

  • Pension interest rates tumbled another 0.40%, bringing the year-to-date decline to almost a full 1.00%.
  • With the continued decrease in discount rates, liabilities for most plans will have increased substantially during 2020. At the same time, the S&P 500 ended July at roughly the level where it started the year.
  • While asset allocation plays a role, most plans probably saw their funded status stay the same over the month of July; however, due to the drop in interest rates this year, funded status has most likely deteriorated year-to-date.

July 2020 Summary

The story from June continued in a magnified manner in July. As credit spreads tightened and Treasury yields declined, long-term corporate bond yields dropped another 0.35%+ and are now down approximately 0.85% for the year. Equity markets posted strong returns for the month of July, continuing their recovery despite troubles with reopening and increases in virus cases in parts of the US. For some equity markets, they ended July where they began 2020.

Overall, plans can expect to see minor changes in their month-to-month funded status relative to the market volatility observed. While the decrease in interest rates will increase liabilities, the gains on equity portfolios could match those increases. Plans with larger equity allocations should see the largest improvements in funded status but a majority of pension plans are still likely down from the beginning of the year.

Discount Rates & Asset Returns

Discount rates decreased sharply in July, dropping another 0.39%. Current rates are now down 0.92% since year end 2019 and are 1.13% lower than rates from this time last year. The FTSE pension discount index finished July at 2.31%.

Global equities continued to surge as significant stimulus provided an important tailwind to business sentiment, even as the reopening of some economies stumbled. Bond markets also reported gains as the Fed committed to keeping rates low and provided support in credit markets. The weakness of the US dollar, negative real interest rates and economic uncertainty led to a surge in the price of gold.

What’s New at R&M?

R&M Managing Directors featured in BenefitsPRO

Managing Director’s Michael Clark and Phil Gorgone offer expert insight into why investors, especially those with interest rate-sensitive liabilities, will need to take a look at their expected return and risk profiles in this BenefitsPRO article

Read more


Volatility in Context: Investment Commentary and Outlook as of July 9th

Read our latest installment of our series that addresses the effects of the COVID-19 pandemic on markets and economies.

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Our August FOURcast

  • Equity markets rose this month and corporate credit spreads narrowed further, causing these bonds to rise in value. Significant stimulus continued to provide an important tailwind to business sentiment, even as the reopening of some economies stumbled.
  • The weakness of the US dollar, negative real interest rates and economic uncertainty led to a surge in the price of gold and other precious metals.
  • The EU approved a historic €750bn recovery fund to tackle the current downturn. US lawmakers debate the size and scope of their next stimulus package, as both parties agree on the need for additional spending.
  • Cases of COVID-19 continued to rise in the US, with a number of governors reintroducing measures to slow the spread of the virus.

Click to read our full monthly macro update for August

SECURITY INDICES: This presentation includes data related to the performance of various securities indices.  The performance of securities indices is not subject to fees and expenses associated.  Investments cannot be made directly in the indices.   The information provided herein has been obtained from sources which River and Mercantile LLC believes to be reasonably reliable but cannot guarantee its accuracy or completeness.

CONFIDENTIAL:  For addressee use only, not to be disclosed to any other person without express consent from River and Mercantile LLC.  Past performance cannot be relied upon to predict future results.  River and Mercantile LLC is an investment advisor registered with the US Securities and Exchange Commission.

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