Each quarter, Ryan ALM produces the “Pension Monitor” to reflect how pension liabilities are behaving versus plan assets. We believe that pension plan liabilities need to be measured and monitored regularly. Without knowledge of plan liabilities, the allocation of plan assets cannot be done appropriately.
The funded ratio/status of pension plans are present value calculations. Each type of plan is governed by accounting rules and actuarial practices, which determine the discount rate used to calculate the present value of liabilities. Single employer corporate plans are under ASC 715 (FASB) discount rates (AA corporate zero-coupon yield curve); multiemployer plans and public plans use the ROA (return on asset assumption) as the liability discount rate. The difference in liability growth between these plans can be quite significant, which will affect funded status and contribution levels.
Given the strong rebound in markets following the onset of Covid-19, it shouldn’t be surprising to see that assets have outperformed liabilities during the last 15 months. Whether the plan is a public, corporate, or multiemployer plan, assets have been aided by strong equity markets and liability growth has been muted by rising interest rates. This combination has been great for pensions that have witnessed strengthening funded ratios and improved funded status.
Please don’t hesitate to reach out to us if we can answer any questions related to asset/liability management.