So far this year, the present value of future benefit obligations for pension plans has grown by 2.73%, while assets have shrunk by 2.73%, as measured by the group’s asset allocation model.
Much of the disparity is due to the investment performance of equities versus fixed income.
Liabilities are represented by a long zero coupon bond portfolio as defined by the FASB, so “when the two run counter clockwise to one another a pension plan cannot succeed. The fixed income component within the asset portion is not nearly enough to improve relative returns significantly. The liabilities on the other hand are totally dependent upon the shape and status of the yield curve,” Ryan Labs notes.
On a year to date basis:
- the S&P 500 has lost -3.36%
- the MSCI EAFE has fallen by -4.64%
- while the Lehman Aggregate has increased by 1.79%
- cash has earned 0.25%.