During December 2014, U.S. equity markets peaked at all-time highs—over 18,000 for the Dow Jones Industrial Average and 2,090 for the S&P 500 Index. Then, in January, equity markets became more volatile and both indexes pulled back dramatically, as international economic uncertainty rose and oil prices fell. Some thought interest rates couldn’t go any lower during 2014 with the U.S. Federal Open Market Committee (FOMC) hinting at an upward adjustment. But interest rates on the longer end of the maturity spectrum dropped during 2014, which most likely had a detrimental effect on defined benefit (DB) pension plan liabilities.
Now, more than ever, plan sponsors should be reviewing their DB plan investments as we react to these market movements, which are critical in the asset allocation process. For more perspective on the shifting landscape, see my paper “Developing pension plan investment strategy: A variety of considerations,” published last year to help DB plan sponsors understand the range of considerations and how they interact in the development of a pension plan investment strategy.