Monthly Retirement Update

Retirement Update – October 2019

Oct 4, 2019 | Defined Benefit, Industry Updates

Key Takeaways:

  • September offered some respite for plan funding levels with interest rates increasing from recent lows.
  • Typical discount rates increased 14bps in September but remain down about 100bps since year-end 2018.
  • Equity markets rebounded following a volatile August.

September 2019 Summary

Long term interest rates saw some of the steepest rises in recent memory in early September, with the 10 year US Treasury yield rising ~30bps in a few days. This increase was not fully sustained for the rest of the month but discount rates did remain higher compared to their multi-year lows achieved in August.

Equity markets registered solid gains, however they continue to be sensitive to news-flow regarding China-US trade tensions and also to macro-economic data releases, where markets are already expecting some slowing of global economic activity over the rest of the year.

Discount Rates & Asset Returns

Discount rates increased for the first time since April, increasing 0.14% in September. However, current rates are still down 1.08% since year end 2018 and are 1.04% lower than rates from this time last year. The FTSE pension discount index finished September at 3.14%.

Global equity markets rebounded even with the ongoing back on forth on trade between the US and China. Central banks made accommodative comments and the Fed lowered interest rates by 0.25%. US equities increased 1.8% and foreign developed equities increased almost 3%. Bonds generally decreased in value as rates were up from all-time lows.

What’s New at R&M?

Pension Investing – Why Equity Derivatives Now?

Managing Directors Tom Cassara and Ryan McGlothlin share their thoughts on why plan sponsors should be looking at equity derivatives for their pensions.


R&M Directors Interviewed in Recent PLANSPONSOR Article

Directors, Michael Clark and Dan Atkinson, are interviewed on the upcoming decision many plan sponsors are facing regarding what interest rate they will use to determine their unfunded vested benefits (UVBs) for the next five years.

Click to read more

Ask R&M!

Q: With the UK due to leave the European Union on October 31, what are the implications of investment markets and US pension plans?

A: The UK is scheduled to leave the European Union on October 31st, referred to as ‘Brexit’. Although there are plans to seek an extension of this deadline if a deal to leave is not reached before then, there is a chance the UK will leave with no trade agreements in place. The implications of this disruption for the UK economy would be severe. European economies would be relatively less impacted but the concern is that this shock could tip the Eurozone into recession.

US pension plans typically have little exposure to UK equity markets or other assets denominated in sterling so have little direct investment risk to Brexit. However, there are other concerns. With global economic growth slowing and equity markets currently exhibiting fragility, the immediate concern with such events is the negative impact on sentiment which could reasonably contribute to US equity market declines and falling US interest rates, as an example. Like other political events, the outcome of Brexit is very difficult to predict and it is even harder to infer the impact on investment markets. Surprises to the upside are also possible and should not be discounted. Where we have discretion to take investment positions, we may take views around outcomes of events like Brexit when we feel market pricing is disjointed from reality. However, with very different outcomes that are finely balanced we recommend investors do not attempt to predict but rather plan, i.e. hold investment positions they could live with if any of the possible outcomes are realized.

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

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