Retirement Update

Retirement Update – October 2018

Oct 10, 2018 | Industry Updates

Key Takeaways:

  • Discount rates slightly increased during the month, pushing liabilities down.
  • Investment returns were down except for small gains in developed equity markets.
  • Even with small to negative returns, the increase in discount rates should leave most plan sponsors seeing funded status gains once again in 2018.

September 2018 Summary

There was no great place to invest during September. Fortunately for most pension plan sponsors, the decrease in plan liabilities will more than offset any losses due to poor asset returns. Plans heavily invested in large cap US stocks were best positioned to improve funded status in September, seeing a small equity return (~0.5%) combined with a 1-2% liability decrease.

Discount Rates & Asset Returns

After decreasing for two straight months, discount rates increased 0.11% from last month and are back in line with rates from the end of Q2 2018. Rates are much higher than rates at this time last year and are up nearly 0.60% since the end of 2017.

Developed market equities saw positive returns, led by foreign equities. Trade tensions and a strong dollar continued to hurt emerging markets. The Fed raised rates by 0.25% and interest rates increased across the yield curve while credit spreads decreased. Treasuries decreased while corporate bonds were cushioned by falling credit spreads.

What’s New at R&M?

River and Mercantile well represented at the upcoming Conference of Consulting Actuaries Annual Meeting

Several of our colleagues will be presenting to their industry peers later this month at the Conference of Consulting Actuaries Annual Meeting in Colorado Springs. Michael Clark and Kevin Morrison will each be addressing different aspects of pension plan terminations, while James Walton will be speaking on new developments in liability driven investment strategies. Lauren Meyer will also be speaking at a session titled, “So You Think You’re Smarter Than a New EA?” which will test attendees’ knowledge of exam concepts from the Enrolled Actuaries exam series.

Ask R&M!

Q: My frozen defined benefit plan is still years away from termination. What can I do over the next few years to ensure that the eventual plan termination is as simple and painless as possible?

A: There are a lot of things you should be doing now to prepare for an eventual plan termination. We’ll split this answer into two parts and address financial items this month and administrative items next month.

First, you’ll want to be sure you understand the plan’s upcoming funding requirements as the funding relief interest rates used for calculating minimum funding liabilities will start to go down quicker than they have in recent years. That will cause minimum funding liabilities to increase and could result in higher required contributions depending on your funded status.

You should also take advantage of discount rate arbitrage opportunities to offer lump sum windows at the most opportune times. For example, based on rates today, 2019 will most likely be a good year to implement a lump sum cashout window. You should also look into purchasing annuities for select groups of retirees. These two strategies will help reduce administrative costs and reduce overall funded status volatility going forward.

This is just a small sampling of what can be done to position a plan for termination that may not happen for years to come. A Plan Termination Readiness Assessment would be a good way to assess how well you’ve done getting the plan ready, and to provide a menu of items that should be addressed before starting the termination process.


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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