After strong returns for many years, the average funding ratio of many pension plans has increased and for corporate plans an increase in the discount rate has also contributed to improved funding ratios. However, with growing geopolitical tensions raising uncertainty in markets, this could negatively impact asset returns and interest rates. Both factors can negatively impact plans’ funded status. 

With concerns around inflation, rising interest rates, and overheated equity and private market valuations, the next step for plan sponsors very well could revolve around securing the gains of the past several years. Now, with many corporate plans near or at 100% funding, assets are being parked in liability-matching investments or being shipped off to insurance companies. U.S. corporate pension plan buyout sales saw their highest volume since 2012 last year.

How plan sponsors navigate the coming year of inflation, central bank tightening and high valuations will go a long way in determining their long-term outlook. After years of big growth, risk measures might be put to the test this year.

P&I’s Managing Pension Risk and Liabilities conference will bring together peers to discuss current challenges and best strategies to overcome them.

Conference website