Retirement update – October 2020
- The US stock market hit an all-time high on September 2nd but reversed course and declined close to 4% by month end.
- Pension discount rates were little changed from the previous month.
- Many plans will see funded status deteriorate over the month to varying degrees mainly depending on their level of equity exposure.
September 2020 Summary
As we said last month, we expect there to be plenty of market volatility between now and the end of the year. That definitely played out in September as global equity markets, and especially US equities, declined with news of a pullback in openings and re-closings due to higher COVID-19 infection rates in the US and Europe. Adding to the market volatility was the death of US Supreme Court Justice Ruth Bader Ginsberg, general election jitters, and no news on an additional stimulus package.
The September equity market sell off, combined with historically low interest rates, will mean lower funding levels than at the start of the year for many plans. Looking forward, funding volatility will likely continue through the remainder of the year with the markets vulnerable to both virus related developments and fallout from the US election.
Discount Rates & Asset Returns
Discount rates remained relatively flat in September, only decreasing by about 0.01%. However, current rates are still down 0.57% since year end 2019 and are 1.5% lower than where they were at 2 years ago. The FTSE pension discount index finished September at 2.65%.
Stock markets, especially US equities, declined due to growing concern over a pullback in openings and re-closings due to higher COVID-19 infection rates in the US and Europe and the stalled agreement on further fiscal stimulus in the US. US equities declined the most (-3.6%) while Emerging Market Equities were down 1.6%. Treasury interest rates were mostly flat as interest rates were projected to be held near zero through 2023. Credit spreads slightly widened as COVID-19 impacts on business remained high.
What’s New at R&M?
Pension Plan Glidepath: An Investment Opportunity
Managing Director Tom Cassara and Senior Analyst Elliott Brewer,”…believe there is an opportunity for DB plan sponsors, especially those with frozen plans, to capture additional return for their plan in a low-risk manner,” and have put together this short piece to detail why and how.
Our October FOURcast
- Equity markets fell over the month amidst a growing number of risks. Credit spreads widened modestly.
- The US election, rising COVID-19 cases, and the impending Brexit deadline all contributed to rising uncertainty in financial markets.
- Stimulus continued to support the economy, but the recovery is uneven and imbalanced. Consumer confidence is rising, albeit off a low base.
- Valuations look expensive but must be viewed in context of the considerable policy response.
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.
Annuity purchases and Guaranteed Separate Accounts
Annuity purchases and Guaranteed Separate ...
Article January 11, 2022 Annuity purchases and Guaranteed Separate Accounts Written by James Walton Share…7 min read