We ran across terrific information from Milliman– the bulk of our analysis comes from the following fantastic White Paper:
2023 Corporate Pension Funding Study
By Zorast Wadia, Alan Perry, and Richard J. Bottelli Jr.
With Copyright approval just this Monday – we can finally bring this great information to you- yay
While it may seem like we talk about interest rates and their effects constantly, there are very few things especially in the shorter term that effect an economy more and therefore economic growth and capital markets.
Good News for Pension Plan Owners and Recipients
In this higher interest rate environment, we have some really good news for not only pension plan recipients but the owners of pension plans as well. Higher interest rates help pension plan funding (see periodic table looking chart for the top 100 pension plans), in the forum of what’s called smaller present value obligations (PBO). While we understand the calculus of this equation it’s far too difficult to explain in this context but from a very high level, higher interest rates the effect of computation of PBO and the higher the rates, the lower the funding amount needed.
Said another way, pension plans generally hold large amounts of bonds and bonds are earning more now.
By taking a look at figure 3 from the fantastic white paper of Milliman, it’s easy to see that in 2007 the slashing of interest rates to levels never seen before caused a dramatic loss in pension plan funding. Not only did this funding drop but again by referencing the chart it’s easy to see that this was almost a 1 1/2 decade hurdle that pension plans fought against to regain their funding level.
Fast forward to today, again our Chart 3 favorite, shows pension plans are making a strong comeback in their obligations and with interest rates higher look to be fantastically and happily funded. This should be comforting to corporate pension plans (again looking to our periodic chart for those) that likely are breathing easier, and this should also be comforting from those pension plan recipients that maybe had concerns on the long term funding ability of their plan.
Given the full funding of Pension plans, we would infer the lump sum window may be closed! Those lucky enough to have offers over the last decade and a half, well done!
Have a Great “Funded Positive Interest Rates Pensions” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth
Management firm.
August 2023 Audio Video Review – The Brain Tests the Systems- Social Security Statement/Web View Reminder – Four Downgrades Reviewed – Financial Planning and Capital Market Review – By John Kvale CFA, CFP
Hello and Welcome to our August Financial Planning and Capital Market Update!
If you are too busy to read, feel free to listen as we describe our post and thoughts in friendly podcast audio format as well as Video!
BREAK IN: Donald the Brain WILL BE reviewing the Schwab TDA Merger information only one of 32k folks to be asked!
Newbies –
We like to articulate our thoughts and review on a Monthly basis our Financial Planning Tips, Capital Markets thoughts and current events!
Hope you enjoy!
August 2023 Video
YouTube
Financial Planning Tip(s)
Check that Social Security Statement no Matter your age
While a late delivery, we managed to remind all (including ourselves) why we need to review annually our Social Security statement, here in this post…. along with some new features from the SSA (Social Security Administration) in their updated website!
From the post:
Capital Market Comments
Not one, not two, not three …. but FOUR Downgrades with one called by ourselves – Tap Tap on the back
In this first post we commented that Fitch put a shot across the bow of the USA Credit Boat with a mild downgrade from AAA to AA+
Not to be outdone, another of the big three credit agencies, Moody’s chimed in as we discussed here
Then back into the pool goes Fitch with ANOTHER downgrade…. here we discussed Fitch’s second downgrade and mentioned we were surprised the One of the Big Three were silent….
BOOM that night of our above post, the other big three S&P Global Markets came to the party…. as we discussed here along with a timely fun YTD Bankruptcy Graph from our bud at Visual Capitalist
These downgrades among a couple of other items, not surprising, led to an upward push on rates… highlights to the far right…. already headed back to norms!
Have a Great Day, Talk to You at the End of September !
John A. Kvale CFA, CFP
Share this:
Like this:
Leave a comment
Posted in Audio, Economy, Education, General Financial Planning, Interest Rates, Investing/Financial Planning, Market Comments, Monthly Review, Podcast, Video
Tagged Credit Agencies, Donald Capone III CFA, Donald the Brain, Fitch, Fitch Rating, John Kvale, Monthly Review, Moody's, S&P Global, Social Security