By: Russ Kamp, Managing Director, Ryan ALM, Inc.

We are pleased to share with you the Ryan ALM, Inc. Pension Monitor for Q3’23 which reviews the year-to-date relationship of pension assets to pension liabilities. As you will see, the differences among public and corporate funding results for the first 9 months of 2023 are far smaller than those experienced during 2022’s volatile year, when corporate plans outperformed public plans by an incredible 31.4%, but they are still meaningful.

So far in 2023, corporate plans have outperformed (assets – liabilities) public plans by 11.2% as US interest rate increases, particularly during the third quarter, impacted liability growth (very negative) on private pensions that operate under FASB accounting standards. Public plans operating under a GASB framework use the ROA as the discount rate so they showed positive liability growth despite the rising US interest rate environment. This difference in accounting for pension liabilities is the sole reason why it appears that 2023 is a challenging year for public (and multiemployer plans) when comparing assets to liabilities. This discount rate disparity may cause higher contribution costs if assets don’t outgrow the ROA hurdle rate.

Asset allocation differences among plan types in exposures to both public bonds and equities reduced some of that performance differential as public plan asset performance topped corporate plans by 1.9%. Public pension plans have much more modest exposures to fixed income and far greater exposure to public equities vis a vis an average corporate asset allocation structure according to P&I’s annual asset allocation survey. With US equities, as measured by the S&P 500 up nearly 13.1% YTD, public plans have captured more of that return.

As always, please don’t hesitate to reach out to you with any of your questions or visit RyanALM.com to see the plethora of research that we continue to produce for your benefit.