Retirement Update – March 2018
✔ Discount rates rose in February to their highest level in nearly a year.
✔ Equity volatility increased and global equities posted negative returns, decreasing about 4%.
✔ February produced little change in funded status.
February 2018 Summary
Plan sponsors should see little change in funded status as of the end of February. Negative equity returns offset decreasing liabilities. Discount rates rose by over 0.2% in February to their highest level since April 2017. At the same time, the 3.7% decline in the Russell 1000 index of US stocks represented the worst monthly performance for equities since January 2016, when stocks fell by 5.4%.
Discount Rates & Asset Returns
Discount rates continued to increase during 2018, rising 0.22%. This puts current rates 0.40% higher than rates at the end of 2017 and in-line with rates at this time last year.
For the first time in more than two years, most major asset classes posted negative monthly returns and volatility increased. US equities decreased close to 4% while foreign equities decreased approximately 4.5%. Interest rates generally rose and fixed income indices decreased in value.
What’s New at P-Solve?
Target Date Funds: Three Things to Consider
Director, Marc Fandetti, and Managing Director, Ryan McGlothlin authored an article discussing three major features common to most TDFs’ structure and the impact these features can have on employer’s goals and participant investment results.
2017 Pension Plan Report Card – An Above Average Year
P-Solve has released its pension plan report card for 2017. To see our grades on the impact of the economy, regulation, and more on pension plans, click here!
I am considering freezing my pension plan. How should the way that I look at my 401(k) change as a result?
Freezing a pension plan has potentially large consequences for retirement security of your employees as your 401(k) plan may be expected to provide regular income for some. Sponsors will want to update their contribution structure (e.g. match, profit sharing contribution) in order to mitigate some of the impact on expected future retirement benefits. In light of these changes to the company’s retirement program, we recommend reviewing your investment menu for diversification, cost, and suitability. We further recommend reassessing your choice of Target Date or Risk Funds. Employees facing lower than expected pension benefits may need a different investment strategy in retirement. Also, make sure that you automatically enroll and increase the contribution rate (to your match, if applicable) of participants. Encouraging employees to take full advantage of your match policy should increase their retirement income security. Finally, you should review your plan’s distribution options. If you do not offer regular, monthly installments to those separated from service, consider doing so. We routinely help clients strengthen 401(k) plans to compensate for pension plan changes and would be happy to discuss your plan with you.
Have a question for P-Solve? Please submit it to firstname.lastname@example.org 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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