Retirement Update – May 2019
- Discount rates rose slightly in April but are still down since year-end 2018.
- Equities rose in April led by the US and are up significantly since year-end 2018. The U.S. Fed shifted course after the late 2018 market downturn and indefinitely paused rate hikes which bolstered investors’ confidence by allaying fears of a downturn in the economy.
- Funded status likely increased during April as a result of equities nearing all-time highs.
April 2019 Summary
The month of April increased funded status gains since the beginning of the year. For most plans, gains since the beginning of the year should be up by about 2% to 3%. Equities added to 2019’s strong returns, with US equities leading the way in April.
Discount Rates & Asset Returns
After a sharp drop last month discount rates bounced back slightly in April, increasing 0.08%. Current rates are now down 0.31% since year end 2018 and are 0.17% lower than rates from this time last year.
Global equities increased strongly in April. The US led the way with a 4% return while international developed markets increased by 2.8%, and emerging market equities by 2.1%. Interest rates rose slightly while credit spreads narrowed. As a result, long dated treasury bonds experienced losses while more risky fixed income like high yield increased. Investment grade bonds were essentially flat.
What’s New at R&M?
River and Mercantile Releases their Q4 Annuity Purchase Update
Total pension buyout sales once again increased in 2018. Q4 sales totaled nearly $10.5 billion which brings total 2018 sales to $26.4 billion, compared to $23 billion in 2017. While Q3 and Q4 sales were comparable to last year, the $6 billion FedEx transaction in Q2 proved to be the difference maker in another record setting year.
Q: Our frozen plan funded status has increased this year after a rocky fourth quarter in 2018. How do we know if we are close to the point where we can terminate the plan?
A: Frozen plans need to keep their eyes on termination liability since surplus in a frozen plan has very limited value. Monitoring plan termination liability closely makes a lot of sense so sponsors can reduce funded status risk as assets close in on plan termination liabilities. Given that funded status has bounced back in 2019, it may be time to assess risk levels and protect funded status for frozen plans. At R&M we provide monthly updates on our client’s funded status so we can make tactical changes to reflect changes in the market.
Have a question for R&M? Please submit it to email@example.com 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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