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Perspectives Topic:

Pension Risk Management

Exceeding Solvency Expectations for Multiemployer Pension Plans

December 1, 2022

Exceeding Solvency Expectations for Multiemployer Pension Plans

A new analysis of the Final SFA Rule shows that plans receiving ARPA relief could surpass goals. When the Special Financial Assistance (SFA) provisions were originally published in 2021 by the PBGC as Interim Final Rules, it seemed unlikely eligible multiemployer plans would achieve the intended goal of maintaining solvency...
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Potential Economic Loss to Participants (ELP) of PRT Transactions

November 18, 2022

An Update to the Potential Economic Loss to Participants (ELP) of PRT Transactions

Year-end is often accompanied by an uptick in Pension Risk Transfer (PRT) transactions. Accordingly, we are updating our estimates of the potential ELP associated with commonly used insurers based on current (10/31/22) market pricing. We developed this methodology to aid fiduciaries who are responsible for choosing an insurer as part...
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November 17, 2022

Look Beyond the Obvious Impact of Rising Interest Rates

As most plan sponsors are well aware, the rapid increase in interest rates year-to-date has significantly reduced the size of their defined benefit pension liability. The discount rate for an illustrative liability with a duration of 12 years increased from 2.71% (12/31/21) to 5.61% (10/31/22), resulting in a 28% reduction...
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Pension Risk Transfer graphic

October 13, 2022

Pension Risk Transfers May Be Transferring Risk to Beneficiaries

Economic analysis reveals a 14% range in credit risk costs among nine Pension Risk Transfer (PRT) insurance providers.  A pensioner’s benefit is fixed – they are not compensated for bearing the risk of lower quality insurers. With annual PRT transactions of approximately $40b, the disparity puts pensioners at risk of...
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January 4, 2022

A Surprisingly Dull Update to Mortality Assumptions

The Update In October, the Society of Actuaries (SOA) released mortality Scale MP-2021, giving us another opportunity to quickly reflect on the impact of mortality assumptions on pension valuation and management. For all points on this chart, we have modified our own input assumptions since our last SOA mortality scale...
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Partial buyouts

October 4, 2021

Getting Into the Right ZIP Code on Mortality Assumptions

NISA is excited to announce a collaborative effort with Club Vita to help plan sponsors get a better assessment of the impact of mortality assumptions on their pension plans. A formal press release on this will be issued in the next few days. This effort leverages the data and mortality...
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NISA Multiemployer Collage scaled - concerning LDI

August 5, 2021

LDI Takes Center Stage for Some Multiemployer Plans

Executive Summary On Friday, July 9th, the PBGC released the interim final rules regarding the multiemployer Special Financial Assistance (SFA) program pursuant to the American Rescue Plan Act of 2021. As mentioned in a previous publication, the program provides much needed relief to multiemployer plans and provides greater benefit certainty...
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June 8, 2021

95 is the New 105: Why Plans Should Consider Accelerating Their Glidepath

Increased funded status, newly legislated funding relief and historical contribution credit balances have created clearer skies and calmer waters for plan sponsors as we look forward over the next several years – from a contribution perspective. What a difference a year makes. On March 31, 2020, the average corporate pension...
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May 17, 2021

Much Needed Multiemployer Financial Assistance: But Don’t Count on 30 Years

Executive Summary The Special Financial Assistance (SFA) provisions of Sec. 9704 of the American Rescue Plan Act of 2021 (ARPA) provides a needed lifeline to many multiemployer plans facing insolvency in the coming decade. Eligible multiemployer plans will be able to apply for direct financial relief in the form of a...
LDI portfolios

March 30, 2021

The Strategic Case for High Yield in Hibernation and LDI Portfolios

NISA has consistently argued that risk assets play a useful role in end-state/hibernation portfolios, in moderation. While every hibernation portfolio needs to be designed based on its specific circumstances, a reasonable starting point to consider would be a portfolio comprised of 20% return seeking assets and 80% hedge assets –...
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March 1, 2021

What a Difference an Hour Can Make

Earlier this year, a change occurred with respect to fixed income security pricing that many service providers in the industry (e.g., custodians, recordkeepers, etc.) considered a relative non-event. However, the change actually has significant implications for managing fixed income against a chosen benchmark, portfolio valuation and manager evaluation. Specifically, on...
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February 19, 2021

Another Extension of Funding Relief?

A few clients have asked us recently for our thoughts regarding the potential for additional funding relief for single-employer DB plans. While we certainly aren’t Washington insiders, our common reaction was that we did indeed expect relief because 1) relief provided under prior legislation is scheduled to begin phasing out...
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Longevity Assumptions

February 11, 2021

Longevity Assumptions – Don’t Let Them Kill You

Around the office, we have found longevity to be an engaging topic. A conversation about expected lifespans can quickly attract a small gathering of people observing and participating in the dialogue. Why? One answer is that it could be very primal - people are genetically programmed to think about survival,...
SOFR graphic

October 5, 2020

A Very Normal World…of Interest Rates

Very little currently could be described as “normal,” but curiously (and perhaps surprisingly) we think interest rates have made the very short list of all things normal in 2020. In a recent Webinar, we discussed various market-based assessments of the potential future direction of interest rates. The data presented that...
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July 2, 2020

The Dynamic Duo: Interest Rate Levels and Volatility

When volatility increases for a particular market (e.g., interest rates, credit spreads, or equity), the potential pain felt by the wrong move or satisfaction felt by the right move can be amplified. Over the last few months we have seen risk increase across a multitude of markets. Our last piece...
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May 14, 2020

What a Difference a Decade Makes!

While the COVID-19 crisis is certainly new for everyone, heightened volatility, a declining equity market, falling rates and widening credit spreads are not.  So although funded status has fallen this time around, as compared to the Global Financial Crisis (GFC), plans have been better positioned to weather the storm. The...
Static Hedge Ratios

April 7, 2020

Are Static Hedge Ratios Really Static?

Authors’ note: The timing of this piece may seem curious in these crazy times – specifically, a post that explores how “bond math” leads to increasing interest rate exposures in a low rate environment. We aren’t sure which reason is more appropriate to describe the timing; the fact that we...
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March 24, 2020

Quick Post on Rebalancing

I know this is not the time for a long note on rebalancing theory and best practices. That said, current market conditions will make upcoming rebalancing challenging and expensive – maybe more so than at any time in memory. So here are the cold, hard facts. Each point has further detail...
Enhance Cash Yields graphic

December 18, 2019

Ignore Mortality at Your Own Risk

For the fifth year in a row, the updated Society of Actuaries mortality tables have reduced the size of pension liabilities: While this short note is becoming a little repetitive (as evidenced by our Groundhog Day movie reference from last year), it provides a good opportunity to highlight some key...
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April 15, 2019

Two Alternatives in the End-state

Many plan sponsors find themselves in the fortunate position of approaching the end of their plan’s glidepath. Favorable market conditions and a contribution nudge from tax reform have made the end state appear on the horizon. This proximity to the finish line is certainly welcome and we expect plans are...
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December 21, 2018

Groundhog Day Meets Mortality Assumptions

Perhaps it would have been more fitting if the Society of Actuaries published their updated pension mortality improvement scale, MP-2018, on February 2. (For readers unfamiliar with the 1993 movie, Phil (Bill Murray) is stuck in a time loop, reliving one particular day – Groundhog Day.) By our estimates, the...
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September 27, 2018

Small Balances, Big Bias?

Small balance annuity buyouts have been increasingly popular in the last few years – and for good reason. Given the fixed PBGC premium1 charged per participant, these participants represent the most costly balances for a sponsor to carry2. NISA’s position on annuity purchases has long been that they are better suited...
Annuity Buyout graphic

July 26, 2018

Separating Annuity Buyout Fact From Fiction

Annuity Buyout In recent weeks we have read a handful of commentaries suggesting that pension plans should take advantage of a “window of opportunity” to complete annuity purchases with insurance companies. They argue that plan sponsors should increase annuity purchases and offer lump sums and even consider fully terminating their...
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December 29, 2017

A Small Lump of Coal in the Discount Curve

‘Tis the season for both giving and receiving, and for pension plans it’s been an especially great season for receiving. Since the beginning of the year, equity returns are up 15-25% and the average pension plan’s funded status is up 4-5%.1 At the risk of sounding like Scrooge, however, we wanted...
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December 18, 2017

Sharing an Interesting Analysis

Sometimes you come across a piece of analysis that is interesting enough to feel compelled to pass it on. I had this reaction while reading AQR’s recently published paper titled “The Illusion of Active Fixed Income Diversification,” which examined the excess returns of active bond managers and concluded that a majority of...
Does the size of a company's pensions affect its stock price?

May 25, 2017

Does the Size of a Company’s Pension Affect its Stock Price?

Summary We examined the statistics behind the claim that large pensions drag down a company’s valuation and accordingly how annuity buyouts allow a sponsor to remove this discount from their stock price. As you might have guessed, this conclusion rests on some erroneous assumptions and interpretations, and what makes for...
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December 7, 2016

Equity Spread Duration is Bubbling Up

Summary In recent months we’ve observed that equity’s effective spread duration (ESD) seems especially pronounced—for example, the S&P 500’s ESD is currently about 25 years vs. its ten-year average of about 15 years. We thought it would be worthwhile to dig a little deeper to understand this dynamic. In a...
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December 2, 2016

Make Funded Status Great Again (Again)

The ongoing equity rally and the rise in Treasury yields prompted us to revisit this analysis. Between yesterday’s close (December 1) and November 10, when we originally calculated these estimates, the yield of the 30-year Treasury increased 15 bps while the MSCI ACWI climbed 0.3% higher. As a consequence, plan...
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November 11, 2016

Make Funded Status Great Again

It has been an interesting week. Regardless of your political leanings, Tuesday’s election seems to have already produced another unlikely winner: defined benefit plan sponsors. Between last Friday and yesterday (November 10), the yield on the 30-year Treasury increased 38 bps while the MSCI ACWI jumped 2.2%. This increase in...
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October 20, 2016

The Topography of Pension Risk

Last week, we participated in the annual P&I Pension Settlements Strategies conference. We will share the full materials in an upcoming post, but I thought one exhibit was worthy of special attention. One key point in our presentation was that pensions are not inherently risky. Rather, asset allocation drives the...
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June 8, 2016

There’s Beta in my Alpha! (Part 2)

I received some feedback asking whether the high correlation of managers both to beta and to each other applies to “Aggregate” managers as well. As a brief follow-up to the previous post, I thought I would share results we obtained from the eVestment Analytics database of managers benchmarked to the...
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May 20, 2016

There’s Beta in My Alpha!

When I was a kid, being called different never felt like a good thing. Fortunately, with age I have come to realize that sometimes being different is good. With that in mind, I share this post - warning, the following is as close to marketing as we will ever come!...
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January 4, 2016

The Great Migration Toward Fixed Income

Since the New Year is always a time for reflection, and we are pension geeks, we thought it would be interesting to take a look at how the biggest defined benefit corporate plan sponsors have shifted their plan allocations over the last decade. Using company filing data gathered for our...
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December 17, 2015

Live (Less) Long and Prosper?

Working in the pension industry, it can be confusing to know which side to root for when new longevity projections come out. And when the Society of Actuaries released new mortality projections in October1 that predicted lower life expectancies than previously indicated, our reaction was decidedly mixed. While as human...
Partial buyouts

December 3, 2015

The Full Picture on Partial Buyouts

We hear annuity buyouts frequently discussed as a silver bullet to reduce pension plan risk. Whether buyouts are the right de-risking option was the main topic at the October Pension & Investments’ Pension Settlements Strategies Conference, which we cosponsored for the third year in a row. Judging by the interest...