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More Pensions Deploying Defensive Equity Strategies

All-time low discount rates are forcing pension plan sponsors to rethink equity risk.

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All-time low discount rates used to determine defined-benefit (DB) pension plans’ liabilities, along with equity market volatility, are forcing more plan sponsors to re-examine the risk component in liability-driven investment (LDI) management strategies.

The aggregate funded deficit of the 100 largest corporate defined-benefit plans expanded by $64 billion in the third quarter of 2019, despite an $18 billion increase in the value of plan assets, according to Milliman’s Pension Funding Index. Plan liabilities increased by $82 billion, thanks to declining discount rates. From the end of September 2018 to the end of September this year, the discount rate sank from 4.18 percent to 3.09 percent.

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