Article September 7, 2021

US pension briefing – August 2021

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Key takeaways

  • Pension discount rates increased by 0.05% during August, translating to pension liability decreases of approximately 0.5%-0.7% for a typical pension plan. Discount rates are still down about ~0.50% from the March 2021 highs.
  • Asset market performance was generally positive for August, US fixed income stayed stable, and US equities were up 2-3% for the month.
  • With discount rates up slightly and equities up 2-3%, pension plans should see an improvement in funded status during August.

 

August 2021 summary

Pension discount rates experienced a slight increase after several months of a downward trend during August. This means pension plan liabilities decreased slightly from the prior month. Overall discount rates are still approximately 0.20% higher than they started the year – meaning liabilities should generally be lower than they were at the end of 2020.

Equity markets were up as well, so a typical pension plan should see an improvement in its overall funded status for the month of August with decreasing liabilities and positive asset returns.

 

Discount rates & asset returns

FTSE pension discount rate index last 12 months

After decreasing every month since March this year, discount rates reversed course and slightly increased in August, rising by 0.04%. Current discount rates are now up 0.23% since the end of 2020 and are up 0.09% from this time last year. The FTSE pension discount index finished August at 2.75%.

 

August returns (%)

Despite the worsening delta covid variant, US, global developed, and emerging market equities all continued to grind higher in August. The yield curve steepened with longer term rates seeing slight increases. Credit spreads, gold and the US Dollar were generally flat during the month.

 

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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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