A generic asset allocation that we have been tracking for more than two decades produced a -12.3% return for the first quarter of 2020. That same pension system with a 15-year duration on it’s liabilities allocated equally across maturities and using a US Treasury STRIPS discount rate produced a +18.7% gain in the quarter. Shockingly, pension assets underperformed pension liabilities by 31% during the first 3 months of this year. As a result, assets have now underperformed liabilities by an incredible -288.5% since 12/31/99. A pension system that started with a funded ratio of 100% in December 1999 would now see their funded ratio at 48%.

For those plans that use ASC 715 discount rates (corporations) your underperformance was -14.8%, while those operating with the ROA as it’s objective (publics and many multiemployer plans) would have realized underperformance of -14.1%. In any case the impact on the funded status is extraordinary and clearly unacceptable. It further highlights that managing a pension without paying heed to a plan’s liabilities is not an effective long-term strategy.