March 6, 2023 | 2 Minute Read
In its 21st year, the Pension Review “First Take”, Position of Strength, analyzes the 50 companies in the S&P 500 with the largest US Defined Benefit (DB) plans based on asset values. The publication is designed to provide initial impressions on the factors that impacted corporate DB plan sponsors in 2022 and highlights potential trends for the year ahead.
Given the general rise in funded levels over the past two years with most plans either fully funded or overfunded, we expect de-risking actions through asset allocation shifts and pension risk transfer to continue to be in focus for many plans sponsors. As part of this, demand for Outsourced Chief Investment Officer (OCIO) services will likely continue to remain high as sponsors look for partners to help them navigate new phases of their life cycle. Finally, as sponsors take actions to reduce the risk of their DB plans, some are now turning attention to enhance their defined contribution programs.
Basis point (bp) refers to one hundredth of one percent.
Expected Return on Assets (EROA) assumption refers to the expected long-term annual return on plan assets. The assumption is influenced by plan asset allocation, future expected asset class returns, and potentially, historical returns.
Generally Accepted Accounting Principles (GAAP) refers to accounting rules and standards for financial reporting, and is the standard adopted by the U.S. Securities and Exchange Commission (SEC).
GAAP Discount Rate refers to the discount rate used to value pension liabilities per GAAP accounting rules and standards. It is based upon yields available on high quality corporate bonds at the end of a company’s fiscal year (i.e., not a smoothed or averaged rate).
Pension Buy-Out refers to a transaction whereby a pension plan sponsor transfers some or all of its pension obligations to an insurer.
Equity securities are more volatile than bonds and subject to greater risks. Small and mid-sized company stocks involve greater risks than those customarily associated with larger companies.
Bonds are subject to interest rate, price and credit risks. Prices tend to be inversely affected by changes in interest rates.
Alternative investments often are speculative, typically have higher fees than traditional investments, often include a high degree of risk and are suitable only for eligible, long-term investors who are willing to forgo liquidity and put capital at risk for an indefinite period of time. They may be highly illiquid and can engage in leverage and other speculative practices that may increase volatility and risk of loss.
Alternative Investments by their nature, involve a substantial degree of risk, including the risk of total loss of an investor's capital. Fund performance can be volatile. There may be conflicts of interest between the Alternative Investment Fund and other service providers, including the investment manager and sponsor of the Alternative Investment. Similarly, interests in an Alternative Investment are highly illiquid and generally are not transferable without the consent of the sponsor, and applicable securities and tax laws will limit transfers.
THESE MATERIALS ARE PROVIDED SOLELY ON THE BASIS THAT THEY WILL NOT CONSTITUTE INVESTMENT ADVICE AND WILL NOT FORM A PRIMARY BASIS FOR ANY PERSON'S OR PLAN'S INVESTMENT DECISIONS, AND GOLDMAN SACHS IS NOT A FIDUCIARY WITH RESPECT TO ANY PERSON OR PLAN BY REASON OF PROVIDING THE MATERIAL OR CONTENT HEREIN. PLAN FIDUCIARIES SHOULD CONSIDER THEIR OWN CIRCUMSTANCES IN ASSESSING ANY POTENTIAL INVESTMENT COURSE OF ACTION.
Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur.
The views expressed herein are as of December 31, 2022 and are subject to change in the future. Individual portfolio management teams for Goldman Sachs Asset Management may have views and opinions and/or make investment decisions that, in certain instances, may not always be consistent with the views and opinions expressed herein.
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Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative purposes only.
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Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices. The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a benchmark against which to evaluate the investment or broader market described herein.
Moody’s Aa Corporate Bond Index refers to an index of corporate bonds given an Aa rating by Moody’s investor service, and is a popular proxy for pension accounting discount rates.
S&P 500 Index is the Standard & Poor's 500 Composite Stock Prices Index of 500 stocks, an unmanaged index of common stock prices. The index figures do not reflect any deduction for fees, expenses or taxes. It is not possible to invest directly in an unmanaged index.
US Treasury Bond is a debt obligation backed by the United States government and its interest payments are exempt from state and local taxes. However, interest payments are not exempt from federal taxes.
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