For many of us living on the East Coast, August was a beautiful month to spend time on the beach. Unfortunately, it wasn’t as pleasant for those managing a U.S. defined benefit plan, as the “perfect storm” hit with both a market decline and rapidly falling interest rates. According to a study by Mercer, the funded ratio for the S&P 1500 declined an incredible 4% to 82%, and the pension deficit grew by a whopping $129 billion to nearly $450 billion. There is nothing sunny about those numbers.
The only way to have protected plan funding was to have engaged in a de-risking program through either a cash-flow matching strategy or through duration matching using long-duration Treasury bonds or operate under GASB accounting and pretend that liabilities and assets both grow at the same rate. Since we know that isn’t the case, funding once again deteriorated for both multiemployer and public pension systems.