Interview
The Impact of Market Volatility on Retirement Investing
- Defined contribution portfolios have declined 10% to 20% year-to-date, while corporate pension plans have seen asset declines of 8% to 10%.
- The aggregate system-wide funded status ratio fell below the 78% level observed in December 2008 to approximately 75% in mid-March, recovering to an estimated 80% by the current date.
- Recent market volatility may have left many investors overweight in fixed income and underweight in equity, prompting a re-examination of risk tolerance and a potential rebalancing toward strategic targets.
- Demographic shifts in risk perception are emerging, with younger investors likely comfortable with current volatility, while those near retirement are reassessing allocation strategies amid the decline of corporate defined benefit plans.
- Corporate pension plans are reconsidering long-term asset allocation compositions, sub-asset class exposures, and governance structures to ensure dedicated investment teams replace reliance on finance or treasury departments.
- Legislation aims to provide flexibility through increased loan limits, tax relief for coronavirus-related distributions, and a waiver of 2020 required minimum distributions.
- Funding obligations for corporate pensions scheduled for 2020 are deferred until January 1, 2021, with sponsors permitted to use 2019 funded levels to determine 2020 benefit restrictions.
- Plan sponsors are actively seeking permanent or extended funding relief beyond current provisions, with lawmakers potentially revisiting these measures later in 2020 to establish more durable solutions.