Article January 7, 2022

US pension briefing – December 2021


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Key takeaways

  • Discount rates continued to inch higher with Treasury yields making the biggest moves.
  • Equity returns were once again up, despite concerns from the Omicron variant.
  • Most plan sponsors should see positive funded status improvements during December and meaningful increases since the beginning of the year.

December 2021 summary

Discount rates and equity returns both moved in the right direction for pension plan sponsors to end 2021 which should result in improved funded status over the month. For many plan sponsors there should be a noticeable improvement to their year-end funded status compared with the beginning of the year.

Two major things happened during December. First the Federal Reserve signaled a quicker rise to the Fed Funds Rate due to inflation concerns. Not only did the Fed indicate that a rate hike would take place sooner than expected (originally expectations were for mid-2022), but they also indicated that 2022 could see three rate hikes as opposed to the two that were expected. Second, despite the growing presence of the Omicron variant, markets continued to be bullish and unemployment continues to head in the right direction.

Where does this leave us going into 2022? Assuming that the economy continues to move forward despite the ongoing pandemic and that supply chains and unemployment rates continue to improve, pension plan sponsors may be in for a pleasant year with increasing discount rates and positive equity returns. There is a lot that could throw a wrench into the optimistic forecast, but for pension plan sponsor we’re currently looking at what could very well indeed play out to be another decent year.

Discount rates & asset returns

FTSE pension discount rate index last 12 months

Source: FTSE Pension Liability Index

Volatility in discount rates decreased in December, as rates were consistently, higher throughout the month and finished up about 0.08% from the end of November and up about 0.33% from the end of 2020. Treasury rates ended the month up all along the curve, but especially at the short end, at the same time credit spreads tightened. The FTSE pension discount index finished December at 2.83%.

December returns (%)

Source: Morningstar

Global equities bounced back on the strength of corporate earnings and US equities finished the month with a gain of nearly 4%, despite an increase in COVID-19 cases in the latter half of December. Negotiations over Build Back Better have now spilled over into 2022 without a noticeable impact on markets. In fixed income, the yield curve continued to flatten out even as yields moved higher across the curve as the Fed took on a more hawkish posture towards inflation. With those moves, bonds, and especially long Treasuries, posted negative returns. Credit spreads tightened, most notably in High Yield, which posted a healthy gain for the month. Gold prices increased while the US dollar eased, primarily due to year-end buying support for gold and concerns around the rapid spread of the Omicron variant.

R&M pension news

Navigating a frozen plan to termination

Pension plan terminations are on the rise.  Strong portfolio performance, strong corporate balance sheets and rising interest rates have contributed to many plan sponsors of frozen pension plans to either consider or implement a full termination.

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INVESTMENT ADVISOR:  Investment advisory services are provided by River and Mercantile LLC, an investment advisor registered with the US Securities and Exchange Commission.

The information contained in this document is strictly confidential. The information contained herein may not be reproduced, distributed or published by any recipient for any purpose without the prior written consent of River and Mercantile LLC.


The value of investments and any income generated may go down as well as up and is not guaranteed. An investor may not get back the amount originally invested. Past performance is not a guide to future performance. No representation, warranty, or undertaking, express or limited, is given as to the accuracy or completeness of the information or opinions contained in this document by River and Mercantile LLC or any of its partners or employees and no liability is accepted by such persons for the accuracy or completeness of any such information.

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