Stars Aligning For Corporate Plans to Take De-Risking Actions
The market volatility experienced in early to mid-October speaks to the importance of plan sponsors having a governance structure and framework in place to effectuate changes to their portfolios in a timely manner when funded levels rise. As we have seen in prior periods, improvements in funded status can dissipate quickly if portfolios are not adjusted to reduce asset and liability mismatches. A well-funded or even fully funded plan can still carry substantial risk for the sponsor if plan assets are not invested in a manner which aligns with plan liabilities.
A confluence of factors – rising interest rates, robust US equity markets and tax reform-driven contributions – have contributed to a significant rise in US corporate DB funded levels. In particular, plan sponsors have benefited in 2018 from the dynamic of both rising interest rates and equity prices. A continued rise in long-term interest rates may prompt a more tepid equity market environment. In this short note we provide our most recent thoughts on the US corporate DB market and how plan sponsors may be thinking about de-risking today.