Article April 6, 2021

US pension briefing – March 2021

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Key takeaways

  • Pension discount rates continued increasing in March, and are up 0.70% so far in 2021, which once again means lower liabilities for pension plan sponsors.
  • Equity market returns were almost universally positive for the month due to the continuing rollout of COVID-19 vaccines.
  • As a result, most pension plans will see at least modest improvements in their funded status for the month once again. Those with higher equity allocations and less interest rate hedging will see the largest improvements.

 

March 2021 summary

Pension discount rates maintained their upward momentum, closing the month yet another 0.22% higher which should yield another 2-3% liability decrease for a typical pension plan. The FTSE pension discount rate has now fully recovered to be above pre-pandemic levels.

Equity returns for March were largely positive, with the large cap value sector leading the way for the month. This was driven by positive COVID-19 vaccine news, governments beginning re-opening plans, and expectations of additional fiscal stimulus and an infrastructure bill in the US. International equity also gained on similar re-opening and stimulus news, but emerging markets fell due to a slower pace of vaccine rollouts.

Overall, most pension plans should see their funded status improve for the month, particularly those with higher equity allocations. The combination of lower liabilities and positive equity returns will be welcome news to many plan sponsors. Additionally, the American Rescue Plan Act of 2021 was signed into law on March 11th and includes relief provisions for both single employer and multi-employer defined benefit plans. The law provides flexibility in plan sponsors’ cash contribution requirements by changing the interest rate corridors and extending the amortization periods used to calculate minimum contributions.

 

Discount rates & asset returns

FTSE Pension Discount Rate Index - March 2021

Discount rates continued the strong start to 2021 by increasing another 0.22% in March. Current rates are now up 0.70% since the end of 2020 and up around 0.10% from this time last year. Discount rates are now the highest they have been since year-end 2019. The FTSE pension discount index finished March at 3.22%.

 

March returns (%)

Equity markets closed the month with positive returns enhanced by stimulus measures and continuous global vaccine rollout. On balance, the US and other developed country equities outperformed while emerging markets paused. On the fixed income side, the US yield curve steepened as the Fed committed to letting the recovery take hold and inflation expectations moved higher. Bonds generally saw negative returns as a result of rising rates.

 

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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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