Retirement Update

Retirement Update – January 2019

Jan 7, 2019 | Industry Updates

Key Takeaways:

  • Discount rates were down materially, but still up substantially since the beginning of the year.
  • Equities were also down materially during December. Fixed income/hedging assets were up.
  • Funded statuses likely were down significantly during December, depending on the asset allocation.

December 2018 Summary

With discount rates and equities declining significantly during the month, December was a rough end to the calendar year for pension sponsors, most of which will have seen material declines in funded status during the month. Rates were still up for the calendar year, protecting most plans from large funded status declines, even with assets declining during the year.

Discount Rates & Asset Returns

In December, discount rates decreased sharply from the 2018 high water mark the past couple months, dipping nearly 0.25%. Despite the decline, rates are still slightly higher than rates at the end of Q3 2018 and are up over 0.60% since the end of 2017.

Global equity markets ended the month down, with concerns over monetary policy, inflation fears, political dysfunction, and signs of economic slowdown across the globe. US equity markets fell 9.3%, international developed markets by 4.9%, and emerging market equities by 2.7%. Interest rates generally decreased across the curve, with the exception of 1 year and below. Credit spreads widened, causing negative returns in the more risky fixed income markets like high yield. Oil prices again fell during the month.

What’s New at R&M?

Managing Director Featured in Pensions & Investments

Tom Cassara, Managing Director in R&M’s New York office, was featured, Dec. 19th 2018, in Pensions & Investments “Industry Voices” section.  Tom was interviewed and asked to give his commentary on pension investing and the next generation of glidepaths.  You can read the piece online here

Ask R&M!

Q: Given the funded status decline during December for calendar year-end, what should we be doing during 2019?

A: As we begin a new year and as we have just experienced significant market changes (both equity pricing and bond yields changed materially during December 2018), some reassessment and planning is appropriate. Glide paths may need adjusting as funded statuses likely declined. Asset allocations can be reviewed given the changes. PBGC premiums may increase significantly based on December 31, 2018 funded status and strategies may be needed to mitigate increases. Cash and accounting expense projections should be updated and mitigation options should be reviewed. 2019 valuation assumptions should be reviewed as well—not just economic assumptions, but demographic assumptions (i.e., will employees be retiring at the same rates as previously assumed?)


Have a question for R&M? Please submit it to and look for a possible answer in next month’s update!

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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