New York (1/31/17) — Rising interest rates contributed to a fourth-quarter rebound in pension funding levels for the single-employer defined benefit plan tracked by Sibson Consulting and Segal Marco Advisors, and ended the year at roughly the same funding level as when 2016 began.
The funded status of the model plan examined in each quarterly issue of Prism began the year at 83 percent, but fell to a 2016 low of 76 percent in the second quarter before shooting back up to 82 percent in the fourth due to a 7 percent liability decrease and a 2 percent decline in assets.
“On the one hand, one can conclude that ‘nothing happened’ in 2016 — but this is not at all true when one looks at the quarter-by-quarter movement of the funded status,” commented Stewart Lawrence, National Retirement Practice Leader. “A quarter-by-quarter view shows plans’ exposure to the uncompensated risks of interest-rate movements.”
“Going Forward,” Mr. Lawrence added, “the significant volatility in funded status in the recent past, underscored by exposure to the precipitous drop and subsequent rise of interest rates this year, highlights the importance of examining risk-mitigation strategies, especially relating to the uncompensated risk of interest-rate movements.”
To speak with Mr. Lawrence about Prism, and how it may inform plan sponsors’ decision-making, contact Todd Kohlhepp.
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Sibson Consulting (www.sibson.com), a member of The Segal Group, provides strategic human resources solutions to corporate and non-profit employers and professional service firms. Sibson's services include benefits, compensation, human capital management and change management consulting.