Bookended by two “once in a generation” crises, the past decade was full of surprises, including a double bull market for both equities and fixed income. However, despite record-breaking returns in equity and fixed-income markets, the funded status of the pension plans of companies in the S&P 500 index, in aggregate, exhibited an L-shaped recovery.

To answer why funded status did not keep up with soaring equity and bond returns, Voya Investment Management analyzed publicly available information published in the annual reports of companies in the S&P 500. According to the analysis, the main culprit for the L-shaped recovery in funded status was plan sponsors’ decision to wait at the gates of their glidepaths for interest rates to rise. They never did.

“If the last decade taught us anything, it’s that sponsors do not need to wait for glidepath triggers to derisk. In the 10 years following the global financial crisis, plans that allocated more to long duration credit achieved a similar level of asset return with far less volatility compared to plans that held more equities,” said Oleg Gershkovich, LDI strategist and senior actuary at Voya Investment Management.

For plan sponsors, the good news is that the lessons learned from the period following the global financial crisis left them better prepared for the COVID-19 market dislocation.

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