Archived Insight | February 2, 2023

Model Pension Plan’s Funded Status Continues to Rise

During the fourth quarter (Q4) of 2022, the funded status of the model pension plan examined in each issue of Prism rose by 2 percentage points, to 106 percent, as illustrated in the graph below.

This increase in funded status is primarily attributable to a 7 percent increase in assets, partially offset by a 4 percent increase in liabilities.

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Change in Assets, Liabilities and Funded Ratio

Change in Assets, Liabilities and Funded Ratio graph

 


Source: Prism Review of Fourth Quarter 2022

 

Aspects of investment performance that contributed to the model plan’s rise in asset value

Equity and fixed income returns were positive during Q4, closing out a historic calendar year in investment markets that saw both domestic equities and domestic bonds post negative returns simultaneously for the first time in at least five decades.

Developed international and emerging market equities both performed well in Q4 and outperformed U.S. equities as China relaxed its zero-COVID-19 policy and began to reopen. A weakening U.S. dollar during the quarter provided a further tailwind for international markets.

Fixed income returns were positive in Q4 both domestically and internationally following three consecutive negative quarters.

Examine your own DB plan’s experience

Plan sponsors should examine changes in their own DB plans’ assets, liabilities and funded ratios from the vantage point of both accounting and funding metrics.

We can help employers project their DB plans’ funded ratios with a complete view of the range of a plan’s possible future statuses, presenting early warning signs of potential challenges.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.