We are pleased to share with you the KCS Fourth Quarter 2016 update. As you will read, 2016 was a good year for DB plan funded ratios, as U.S. long rates backed up marginally from the beginning of the year, and assets performed well despite a troubling beginning to the year and a hiccup following Brexit. Will the “Trump Rally” continue? Will interest rates continue to back up? If they do, plan liability growth will likely be negative, and in that scenario, DB plans do not need to generate outsized returns to begin to see improvement in fund ratios and contribution expense.

2017 should be the year that plan sponsors become more liability aware. What does this mean? Asset allocation and investment structure should reflect a plan’s funded status and not some arbitrary return on asset assumption (ROA). As plans see improvement in their funding they should begin to de-risk. Why continue to live with the volatility associated with pursuing the ROA when achieving said ROA doesn’t guarantee anything. Most DB plans were fully funded in the late 1990’s only to see that funded status get crushed under two significant market declines.

History has a way of repeating itself. Let’s see if we can alter the future for DB plans, by trying a new approach.

All the best in 2017,

The KCS Team

Dave, Ivory, Larry, Lillian, Russ, and Russ