Article August 5, 2021

US pension briefing – July 2021

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Key takeaways

  • Pension discount rates fell almost 0.15% during July, translating to pension liability increases of approximately 2% for a typical pension plan. Discount rates are now down ~0.50% from the March 2021 highs.
  • Asset market performance was generally positive for July, with both US fixed income and equities up 1%-3% for the month.
  • With the offsetting effects of increased liabilities and positive asset returns, most pension plans' funded status should have seen little movement over the past month.

 

July 2021 summary

Pension discount rates continued their months-long trend of declining during the month of July, though not as sharply as in June. This means pension plan liabilities once again ticked upwards from the prior month, but 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.

US equities once again outperformed international equities, with US fixed income also posting positive returns across the board. The exception to this was US small cap indices, which fell over concerns of rapid inflation and the impact of the more contagious Delta variant of COVID-19.

That said, typical pension plans should have likely seen little change in their overall funded status for the month of July, since the increased liabilities should have been offset by generally positive asset returns. Whether a plan sees a net positive or negative change in its funded status will depend on its specific liability profile and mix of investments.

 

Discount rates & asset returns

FTSE pension discount rate index last 12 months

Discount rates continued to decline in July, dropping by another 0.13%. However, current discount rates are still up 0.19% since the end of 2020 and are up 0.40% from this time last year. The FTSE pension discount index finished July at 2.71%.

 

July returns (%)

US equities posted additional gains and other developed markets advanced as well with continued economic improvement throughout much of the world. Emerging markets, however, were dragged down by China’s regulatory crackdowns. Credit spreads widened while the yield curve flattened with longer-term rates seeing further declines. Gold appreciated while the US dollar weakened slightly as volatility rose over concerns of spreading COVID-19 variants and inflationary pressures.

 

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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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