Target Date Funds: Three Things to Consider

Target Date Funds: Three Things to Consider

 Part of River and Mercantile Group PLC

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Target Date Funds: Three Things to Consider

by Marc Fandetti & Ryan McGlothlin

Target Date Funds (TDF) have become increasingly important to the retirement security of 401(k) investors. As with any investment option, plan fiduciaries have a duty to select and monitor their TDF according to a prudent and informed process. This duty is complicated by TDFs’ multi-layered structure.

This article addresses three major features common to most TDFs’ structure: asset allocation (specifically, equity exposure), management style (including active and passive management, use of proprietary funds, and tactical asset allocation), and fees – which, if not evaluated carefully and on a manager-by-manager basis, could result in a mismatch between an employer’s goals and participant investment results.

Asset Allocation (Equity Exposure):  The largest TDF managers take very high levels of stock market risk in longer-term funds, ensuring that participants will bear the full brunt of any market downturn.  Even shorter-term funds have relatively high levels of stock exposure – higher than what is typically found in defined benefit (DB) pension funds. While appropriate for some participants, heavy reliance on equities is almost certainly not suitable for as many 401(k) participants as the allocation of the largest TDF managers suggests. TDFs are built mainly for favorable economic and market environments.

Management Style:   Most TDF assets are invested primarily in proprietary, actively-managed funds. This contrasts with professionally-managed pension funds that normally invest in a mix of passive funds and active funds, and through a variety of investment management firms.  Further, most TDFs use Tactical Asset Allocation (TAA), tilting away from long-term, strategic weights in an attempt to outperform their benchmark. This is a form of market timing for which most investors are unlikely to be rewarded.

Fees:   Investment expenses of the typical TDF are higher than mutual funds and professionally-run DB plans.

The overwhelming market share enjoyed by the largest TDF managers suggests that either all plan sponsors agree on appropriate levels of market risk, active management, and use of proprietary versus outside underlying funds or, more likely, that many sponsors have not sufficiently considered the unique needs of their participants.

We believe that evaluating a variety of TDF managers with different portfolio construction and management approaches is an imperative for plan sponsors.


TDFs provide investors with a professionally-managed “fund of funds” portfolio of various asset classes blended to exhibit risk and return behavior appropriate for an investor expecting to retire in a particular year. For example, a participant who is today 12 years from assumed retirement at age 65 would select (or be assigned to) a “2030” fund. TDFs typically rebalance to long-term, strategic asset class targets periodically, and feature an investment mix that changes according to a projected future asset allocation or “glide path,” becoming more conservative (shifting from stocks to bonds) over time. Thus a TDF, once chosen, in theory requires no further action by the participant. They are “automatic.”

Some TDFs invest “to” retirement, assuming immediate withdrawals at that point, others “through” the date of retirement. The “to versus through” designation is not always informative however, as the designation may not say much about equity exposure and risk.

Longer-dated TDFs, intended for younger investors, are generally invested mostly (almost entirely, in many cases) in stocks on the assumption, supported by U.S. market history, that stocks will go up on average over time, and that younger investors should balance their “human capital” (the present value of potential future earnings) with investment capital.

TDFs have seen enormous growth since receiving “Safe Harbor,” qualified default (“QDIA”) status by the Pension Protect Act of 2006.[1] TDF assets barely totaled $150 billion in 2007; they now total nearly $1 trillion.[2]

TDFs can consist of active underlying managers, passive managers, or both. About a decade ago, active managers dominated the marketplace (with 83% of assets in 2006, according to Morningstar[3]); passive managers have closed the gap somewhat in the last decade or so, reducing the all-active TDFs’ share to just about 60%.[4]

Together, Vanguard (all passive), Fidelity (a mix of passive and active), and T. Rowe Price (historically all active but recently having added some passive exposure), dominate the TDF market with over 70% of assets. American Funds, JP Morgan, and TIAA account for another 15% of TDF assets. In this article, we will refer to these firms collectively as the “Big Six” for convenience, though Vanguard, with about $280 billion in assets, has nearly 10 times JP Morgan’s total assets.[5]

TDFs are a great improvement over static, one-size-fits-all “balanced portfolios,” and provide investors seeking diversification, professional management, and gradual risk reduction with a convenient alternative to going it alone. However, the market share of the Big Six, and their ultimately very similar asset allocations, suggests that plan sponsors with unique goals or plan participant characteristics may need to more carefully consider alternatives to the current marketplace consensus.


Equity Exposure

The typical defined benefit pension fund, intended to operate in perpetuity, allocates approximately 60-70% of its assets[6] to equities and equity-like (riskier, growth-oriented) asset classes, and the remainder to more conservative asset classes, including government and corporate bonds. Longer-dated TDFs, however, routinely allocate 80% or more to equities, as shown in the table below.

Equity Exposure (%) by TDF Family[7] and Fund as of 12/31/2017 (Income heading [8])

The premise behind high-equity allocations for younger investors is reasonable: stocks tend to go up over time as the economy and company earnings grow, and investors with longer-horizons can, in theory, tolerate even sizable market declines providing recovery follows. And investors should diversify their relatively high stock of “human capital” with other investments, like stocks. In some cases though, TDF stock exposure may be too high.

Consider that pension funds, unlike individual 401(k) plan accounts, are intended to operate indefinitely, and can in theory take more risk than any individual. The table above shows equity exposure by TDF for each of the Big Six. Taking 70% equities as reasonable for a long-term investment pool like a pension fund, we find that stock levels are well above this target for all TDF families beyond 2030 funds.

Consider also that the typical pension fund participant is approximately 50 years old and eligible to retire in about 15 years, and that the assets invested on their behalf are allocated roughly 65% to riskier investments. The same investor, if assigned to a 2030 or 2035 TDF, would be exposed to 70% to 75% equities– a meaningful “overweight” to stocks relative to DB plans. In 2008, when the broad US stock market declined by about 37%, this overweight harmed retirement prospects: while the typical pension fund lost between 20 and 30%, the average 2030 and 2035 Big Six TDF losses were 35% and 36%, respectively).[9] TDF losses in 2008 were, on average, equal to or greater than those experienced by the S&P 500, despite their diversification.

If an investor or sponsor believes that stocks will continue to both go up over time and outperform bonds, extreme equity levels may be rewarded.  But such an investor should be prepared for extreme volatility as well.

As currently structured, most TDFs will continue to behave mostly like equities in both good and bad markets.

Tactical Asset Allocation

With the exception of Vanguard, each of the Big Six TDF managers employs a form of active management known as Tactical Asset Allocation (TAA). That is, they “tilt” away from long-term asset class weights in an attempt to outperform a strategic-asset-allocation mix or benchmark.  TAA is of course just market timing, and is very hard to execute successfully – much harder than traditional active bond or stock management, as it involves a small number of very concentrated active “bets” that must be timed nearly perfectly. The ability of TAA to generate excess returns consistently is doubtful.[10]


Active Management

Few professionally-managed DB pension funds employ active management exclusively.[11] Recognizing that some asset classes are more fertile ground for a skilled active manager than others, DB plan sponsors tend to use a blend of active and passive management. The largest TDF managers by assets, other than Vanguard (naturally), have reached the opposite conclusion however: they use mostly active management.

The theoretical case for active management in all or nearly all asset classes is weak, and the case for active management by one firm, exclusively, is also weak.

When evaluating the prospects of active management, it is useful to keep in mind that, on average, active managers must underperform due to expenses.[12]

Considering the difficulty of active management, the rarity of true active manager skill, and the case for passive management in more liquid, analyzed and thus “efficient” asset classes, a combination of passive and active management may be preferable.

Use of Proprietary Funds

The Big Six TDF managers’ largest TDF offerings consist entirely of affiliated funds; they use no outside managers.

In the case of an index TDF, this is not troublesome, providing the index manager is proven, as is Vanguard.

In the case of a partially or completely-actively-managed TDF however, the use of one management firm across a dozen or more actively-managed strategies is problematic: a professionally-managed pension fund, recognizing the rarity of active manager skill and the importance of manager diversification, would likely not make a concentrated “bet” on a single organization.

For the same strong theoretical reasons that an investor should favor both active and passive underlying TDF managers, plan sponsors might consider a TDF family that uses multiple managers.


TDF fees continue to fall. At the end of 2016, the average asset-weighted expense ratio was 0.71%, according to Morningstar,[13] while as recently as 2011, the average was 1%.This improvement is due in part to the increased use of passive funds, but also to fee reductions. The trend is positive, but on average TDF remain as, or more, expensive than actively-managed mutual funds. The average 401(k) equity mutual fund management fee is about 0.48%, and the average bond fund fee 0.35%.[14] The average TDF fee of about 0.70% thus seems high relative to any blend of stock and bond funds, even accounting for strategic asset allocation advice, rebalancing and other “features” like TAA, which as we have discussed may or may not add value over time.

TDF fees should continue to decline as assets grow.


TDFs have many virtues, but the typical TDF may not be suitable for some plans.

The typical TDF takes high levels of equity risk, attempts market timing that is unlikely to be rewarded on average, uses much more active management than most pension funds, and is expensive.

High equity exposure forced many to delay retirement, or accept a reduced standard of living in retirement, during the market crash that accompanied the Global Financial Crisis of the last decade. Though a repeat of this episode seems unlikely, even a less-severe downturn could result in permanent losses for those on the cusp of retirement.

Retirement plan sponsors should give strong consideration to TDF managers that avoid extreme reliance on equities, that refrain from excessive tactical tilts unlikely to be rewarded on average, and that charge fees that are reasonable considering expected performance.



[1] Providing plan sponsors prudently select and monitor their TDF manager, a performance “safe-harbor” is available.

[2] Target Date Fund Landscape, Morningstar, 2017.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] P-Solve surveys of non-frozen pension plans, and author experience. Confirmed by studies such as: Deloitte, Asset Allocation of Defined Benefit Pension Plans, November 2015.

[7] As reported by Morningstar. Exposures rounded to the nearest whole number.

[8] An “Income” Fund, where applicable, is intended for retirees. “None” indicates no offering.

[9] For institutional or R6 share classes, as reported by Morningstar.

[10] AQR, Tactical Tilts and Foregone Diversification, April 2014.

[11] P-Solve surveys.

[12] William Sharpe, The Arithmetic of Active Management, Financial Analysts Journal, Jan/Feb 1991.

[13] Morningstar, 2017 Target Date Fund Landscape, 2017.

[14] Investment Company Institute, The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2016.

Marc Fandetti

Director and Senior Investment Consultant
Bio: Click Here

Ryan McGlothlin

Managing Director
Bio: Click Here

2017 Pension Plan Report Card – An Above Average Year

2017 Pension Plan Report Card – An Above Average Year

 Part of River and Mercantile Group PLC

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2017 Pension Plan Report Card – An Above Average Year

by Michael Clark & Justyna Mietelska

Strong markets coupled with favorable changes in corporate tax rates made 2017 a very good year for pension plan sponsors. The continuing run up in the equity markets meant that most plan sponsors saw funded status improvements in 2017 in spite of discount rate declines. Even the end of year dip in discount rates was followed up by a similar bump up in January 2018.

The major legislative event was tax reform. While the change in corporate rates was not aimed at pension plans, the implication for them may be significant. Plan sponsors should evaluate their ability to maximize contributions to their plans or borrow to fund their plans for the 2017 plan year to optimize tax deductions. Extra contributions will lead to improved funded status and the potential for a wave of plan terminations in the next few years.

Legislative/Regulatory: A- (tax reform)

With the passage of tax reform, companies will want to analyze the impact of making additional contributions to their plans and receiving higher deductions. Generally, contributions made by September 15, 2018 can be counted for the 2017 plan year and included on the sponsor’s 2017 tax filing.  With the highest corporate rate dropping from 35% to 21% the cost of each $100,000 of contribution increases $14,000 after the 2017 tax year.

In 2017 we finally received regulations from the IRS that reflect new mortality tables issued back in 2014 by the Society of Actuaries.  The new tables now apply to minimum funding liability calculations, PBGC liabilities, and lump sum calculations. There is the option of delaying application of the new tables for minimum funding purposes until 2019.

Even with favorable market returns in 2017, we expect more plans to hit the PBGC variable rate premium cap in 2018 with the increase in liabilities and the rise in the applicable variable rate percentage applied to unfunded liabilities. Sponsors should look at five-year forecasts of minimum funding requirements and PBGC premiums to plan for what will most likely be increases across the board. This could prompt accelerating contributions to take advantage of higher tax deductions and to mitigate rising PBGC premiums.

Pension Risk Transfers: A (another record year for insurers)

The annuity purchase market was even hotter in 2017 than in 2016. Initial reports from insurers indicate that 2017 was on track to reach upwards of $20B in annuity purchases. This is up from the approximately $14B in 2016. Many plan sponsors are starting to look at a second or third tranche of annuity purchases primarily to reduce projected PBGC premiums and shrink the overall size of their plan.

As we have discussed over the past few years, purchasing annuities from an insurance company for small annual benefit retirees is a ‘no brainer.’ This is particularly true if the plan is subject to the PBGC premium cap.

Plan sponsors will want to evaluate whether or not an annuity buyout makes sense for them. (For more information on what this entails, see our article series on annuity purchases Part 1, Part 2, Part 3). Plan sponsors tend to find that the high administrative costs (PBGC premiums, recordkeeping, etc.) justify purchasing annuities now.

Mortality Assumptions: B (lower liabilities again)

Similar to 2015 and 2016, the SOA published an updated mortality improvement projection scale in the fall of 2017. The new projection scale was the result of incorporating additional demographic data into the SOA’s mortality model along with some modifications to the model.

Plan sponsors can expect another reduction in accounting liabilities due to the 2017 update. For those sponsors using the RP-2014 mortality tables with the MP-2016 improvement scale, updating to the new projection scale should see a reduction in accounting liabilities around 1%.

Interest Rates (Accounting): C+ (lower but stable)

The high-quality corporate bond yields that are used for financial accounting declined through the first half of the year. The second half of the year leveled out and that’s where rates have more or less stayed since August; however, at the tail-end of December rates took a quick dive down another 0.15% to 0.20%. The discount rates sponsors will select at year-end will most likely be about 0.50% lower than last year-end.

Interest Rates (Funding): C (continue to come down)

The underlying yield curve used for determining the liabilities for minimum funding came down substantially from the beginning of 2017 to the end of 2017.

The 10% corridor around the 25-year historical average interest rates continues to be in effect for 2018. The 2018 rates, similar to the last few years, will be lower than the prior year’s rates with decreases of approximately 0.25% in the first segment, 0.20% in the second segment, and 0.20% in the third segment (slightly more than in prior years). Similar to changes from 2016 to 2017, liabilities for contribution purposes in 2018 will be higher by about 2% – 4% due to discount rates.

Market Performance: A+

The year started off strong with risk assets rallying, fueled by hopes of tax reform, infrastructure spending, and deregulation coming from the White House. There were some jitters over possible political risk in Europe but those fears abated with the election of centrist Macron in France. The ECB and Japanese Central Banks generally kept monetary policy steady while the Fed began to tighten by increasing rates. Volatility stayed at all-time lows and markets had a generally smooth rally throughout 2017. The year ended with the passage of tax reform in the U.S and the continuation of a synchronized global recovery. Both were generally seen as a positive for market returns.

The year ended with the S&P 500 up approximately 22%. Developed international equities provided even more impressive returns with the MSCI EAFE Index up 25%. The Dollar depreciated by 10% vs. a broad basket of currencies which helped boost international equity returns in dollar terms. Emerging market equities were the best performers with a return over 37%.

The U.S. Treasury interest rate curve flattened during the year, with short term rates rising as the Fed increased the federal funds rate three times, in line with its advance announcements. The Fed also began to reduce its balance sheet towards the end of the year. The longest part of the curve fell with the 30-Year Treasury bond yield decreasing from 3.1% to approximately 2.7%. Bond markets generally saw small increases especially in more risky sectors such as high yield and emerging market debt as credit spreads narrowed and overshadowed rises in rates. Intermediate duration bonds returned 3.5% during 2017. High yield and emerging market debt increased significantly, up 7.5% and nearly 9.2%, respectively. Long duration corporate bonds increased 12.1% while long duration U.S. Treasuries increased 8.5%.

Plan sponsors with the traditional 60% equity/40% aggregate fixed income portfolios have in general seen their portfolios return approximately 14%, while those with 60% equity/ 40% liability matching bonds would have seen returns around 18%.

Thoughts Going Into 2018

Here are some things to watch for and consider as we move through 2018:

  • “Shrink the ball! – Retiree Carveouts” – This will continue to be a trend in 2018 with many plan sponsors that have previously implemented an annuity purchase looking at doing another round this year. The annuity markets continue to be hot and several new insurers entered the annuity buyout space last year increasing competition.
  • Borrow to fund – With tax reform, many plan sponsors are eyeing additional contributions above their minimum required contributions to take advantage of the higher 2017 deduction. For companies with good credit ratings borrowing capital to fund the pension plan can be economically advantageous.
  • Equity markets – The current bull market is approaching its 9 year anniversary – the second longest since WWII. In 2018, many investors face an uncomfortable dilemma.  Past gains can be locked in from a position of relative strength but strong economic conditions and the desire to outperform bonds mean many will also wish to stay invested. Equity valuations look historically expensive and we are seeing increasing evidence that we are relatively late in the economic cycle.  However, we have yet to see the indicators of an economic slow-down that could provide a clearer message to sell equities and take the gains achieved to date. In fact, on a relative basis, we currently prefer to take risk in equities rather than government or corporate bonds while at the same time we acknowledge the very real risk of a market fall. There are options for plan sponsors to consider as we discussed in our recent article on Managing Equity Risk in 2018.
  • Cash considerations – We have mentioned this in prior years but it is still relevant today: Plan sponsors need to continue to evaluate the long-term cash funding impacts of the legislative changes enacted over the last few years. Contribution requirements will remain suppressed again in 2018. But if, and when, the current interest rate corridor expands, sponsors will see large increases in cash calls. Larger contributions now will prevent shocks later and save PBGC premiums.

Michael Clark

Bio: Click Here


Justyna Mietelska

Investment Consultant
Bio: Click Here

A Return to Normal Volatility?

A Return to Normal Volatility?

 Part of River and Mercantile Group PLC

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P-Solve Insights

The equity markets have been extremely volatile over the past two weeks.   The S&P 500 dropped over 200 points (almost 8%) in only a few days before bouncing back; January’s gains evaporated. Other equity indices showed similar results. Are these market movements perhaps the start of something big, or just the first step to volatility returning to a more typical level?

Why such a violent sell off?

Equity markets were up 22% in 2017 and an additional 7.5% though January 26th. This climb was unnaturally steady with little volatility during 15 consecutive months of positive returns.  It can be unhealthy for markets to have such low volatility as this can lead to investor overconfidence, heightening the risk of sharper falls.

Many factors drove investor confidence, including strong economic data, and the prospect of US tax cuts driving corporate earnings higher. Nobody knows for sure, but some of the factors that likely contributed to the sudden turn down in investor sentiment and the markets were:

  • Higher inflation expectations, and thus expectations that the Fed may hike interest rates by more than expected, potentially slowing the economy
  • A sell-off in crypto currencies
  • Program trading that reacted automatically and rapidly to higher volatility by selling equities to manage risk, leading to higher volatility

A fundamental issue, inflation, may have started a sell off but technical factors made it sharp and sudden.

What may this mean for the market?

The recent volatility does not signal that the equity bull market is over since economic fundamentals remain strong both in the US and abroad.  That said there are good reasons to suggest that volatility should at least revert to “normal”. Asset prices have benefitted for many years from supportive monetary policy, strong corporate earnings growth, generally improving fundamentals (e.g. unemployment, capacity utilization, etc.), and generally falling bond yields. Monetary policy is tightening, bond yields are rising, and fundamentals are strong but flattening. Earnings while still strong may be peaking. Therefore, we are likely to move into a more challenging period for investments of all types as evidenced by greater uncertainty, and thus greater volatility.

What does this mean for retirement plan sponsors and investors?

  • Reevaluate expected returns and risk. Consider rebalancing to lock in gains from asset classes that have had large returns.
  • Higher interest rates mean lower annuity costs. Consider risk transfers or investing more in liability-matching assets.
  • Defined contribution sponsors should review the level of risk in their plans. Would further market corrections impede the ability of older employees to retire? Is the level of risk in your Target Date funds appropriate?
  • Institutional investors can consider limiting the damage they may sustain when equities meaningfully correct through explicit hedging strategies.

Volatility may have returned. Investors should prepare for what this means for their specific circumstances.

2017 Fiscal Year-End Accounting Considerations

2017 Fiscal Year-End Accounting Considerations

 Part of River and Mercantile Group PLC

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2017 Fiscal Year-End Accounting Considerations

by Dan Atkinson & Michael Clark

Many pension plan sponsors are in the process of figuring out what assumptions they will be using to value liabilities for their 2017 fiscal year-end disclosures. This article looks at what has changed this year and what that means for pension plan liabilities.

Presentation of Net Periodic Pension Cost

The biggest news this year came from FASB in the form of guidance for disclosing a pension plan’s net periodic pension cost (NPPC), also known as pension expense. This guidance will impact public companies disclosures after December 31, 2017 (i.e. starting in 2018).  Implementation for non-public companies comes one year later, though early adoption is allowed.  This guidance also applies to not-for-profit organizations.  The FASB guidance was published in ASU 2017-07.

While the new guidance doesn’t change the calculation of the NPPC, how it’s presented on income statements will change.  Going forward, only the service cost component of the NPPC will be reported as an operating expense.  All other components of NPPC will be reported separately outside of operations.

Companies that have a significant focus on operating income/expense may see a significant impact from this change:

  • Amortizations of net losses or prior service costs from plan design changes that have traditionally had a drag on operating income will no longer be a burden.
  • Companies that have maintained aggressive investment strategies to justify a higher expected return on asset assumption may want to consider a different (less risky) strategy going forward.
  • Companies that have avoided risk transfer strategies such as lump sum cashout windows or annuity purchases due to the impact from settlement accounting may find these strategies more attractive under the new guidance.

New mortality tables

Two new mortality updates await plan sponsors for December 31, 2017 disclosures.  First, as anticipated, a new mortality improvement projection scale was released by the Society of Actuaries (SOA) in the fall. This scale is known as MP-2017.  Similar to the past few mortality improvement scale releases, this new projection scale will lower liabilities around 1% for most plans.

The second mortality update comes from the IRS and has been anticipated for years. Many plan sponsors adopted the SOA’s newest tables for accounting purposes when they were released in 2014 (the RP-2014 mortality tables). The IRS finally released new regulations incorporating these tables into actuarial valuations beginning in 2018. Incorporating these tables in 2018 will increase lump sums, minimum funding liabilities, and PBGC liabilities.

By incorporating the new mortality tables into lump sum calculations, sponsors will generally pay 4%-5% more to a participant that elects to receive a lump sum than under the 2017 mortality tables.  This should not impact plans that do not pay lump sums, and will have minimal (or zero) impact on plans that only pay lump sums up to a small limit (e.g. $5,000, $10,000).  It also is not likely to impact plans that use a different (non-417(e)) basis for calculating lump sums including cash balance plans that pay the account balance as a lump sum.

For plans that do pay lump sums and value them for accounting purposes, there will be an increase in liabilities.  How much of an increase will depend on other valuation assumptions such as the percentage of participants that elect a lump sum.

In addition to the new lump sum mortality, the IRS also updated the mortality basis for minimum funding requirements.  This change should not have a direct impact on financial accounting results.  However, some plan sponsors have continued to use the minimum funding mortality for accounting purposes, either as a non-material simplification, or because the underlying plan mortality is expected to resemble the “old” mortality tables used by the IRS through 2017.

Sponsors who have used the IRS minimum funding mortality will have a decision to make going forward as to whether to continue this practice.  The fact that the IRS minimum funding mortality assumption is now much more in line with the most recent SOA mortality tables does open up an alternative for more plans to use this funding mortality table as the basis for accounting. Most plans however, have changed to, and have become comfortable with, the fully generational table which the IRS minimum funding mortality table attempts to mimic.

Finally PBGC liabilities will also most likely increase for most plan sponsors increasing 2018 PBGC premiums and pushing more plans to the variable rate premium cap. This may be significant if plans pay PBGC premiums from the trust and reflect those estimated amounts in the calculation of the NPPC.

Discount rates have dipped

Discount rates have come down since the beginning of the year. As of January 1st the Citi Pension Discount Rate Index was at 4.14% and as of November 30th it had fallen to 3.78% – a decrease of approximately 35 basis points. What is interesting to note is how steady rates have been since the end of August.

With discount rates dropping, pension liabilities will be increasing. For most plans liabilities will increase anywhere from 3% – 7%.

What plan sponsors should do

Plan sponsors will need to take note of these changes as they prepare for year-end financial reporting. A thorough evaluation of the impact of mortality assumptions is warranted for plans that pay lump sums or that have historically used the IRS mortality tables for accounting purposes. Sponsors will also want to take note of the potential impact the reclassification of the NPPC components have on their income statements. That reclassification could lead to discussions on investment strategy or other risk transfer strategies that they have previously avoided.

Dan Atkinson

Director and Consulting Actuary
Bio: Click Here

Michael Clark

Director and Consulting Actuary
Bio: Click Here

Retirement Update – December 2017

Retirement Update – December 2017

 Part of River and Mercantile Group PLC

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P-Solve Monthly Retirement Update

December 2017

November 2017 Summary

Most plans will continue to see funded status increases as equities continue to rally while discount rates remain steady. Even with discount rates down YTD, plans will most likely be better funded come year-end barring any drastic changes in rates or returns during December.

Discount Rates & Asset Returns

Discount rates remained relatively flat during November with the Citi Pension Discount Curve holding steady at around 3.78%. This represents a decrease of approximately 0.35% from the beginning of the year.

With the increasing prospects of a U.S. Tax bill, U.S. equities were one of the best performing equity regions. Foreign equities also rose as their currencies strengthened vs. the Dollar. The yield curve flattened causing longer term bonds to increase in value while shorter term segments decreased.

What’s New at P-Solve?


P-Solve Growth Continues

P-Solve adds two new investment colleagues, including defined contribution practice leader. “P-Solve is a recognized leader in developing customized risk-reduction and investment solutions for our clients,” said Phil Gorgone, Managing Director and Head of US Investments for P-Solve, “and the risks to DC plan sponsors have clearly increased. Marc Fandetti will lead our DC Team, assisting plan sponsors with reducing fiduciary risk and improving the retirement security of their employees.” Read more here.


Annuity Purchases – Continued Momentum

We are currently helping a handful of plan sponsors complete an annuity purchase to reduce plan headcount by year end. They will save significant PBGC premium costs in 2018 and the years ahead.  We have also completed preliminary due diligence on two new insurers that have entered the pension annuity buyout market. Looking ahead, Q1 and Q2 of 2018 are ideal times to start the annuity purchase process to ensure the most competitive pricing. Contact us for more info.

Ask P-Solve!



How do I protect my plan against market corrections and negative equity returns?


With the run up in the equity markets over the last eight years, many plan sponsors are asking this question. There are strategies that plan sponsors can implement to limit their downside exposure beyond simply investing more into LDI or long-duration fixed income strategies. For more details, check out this article that explains the basics of structured equity.



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 P-Solve 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 P-Solve LLC.  Past performance cannot be relied upon to predict future results.  P-Solve LLC is an investment advisor registered with the US Securities and Exchange Commission.