How did pension glidepaths impact pension plan outcomes?

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In March of 2020 we saw a significant downturn in the equity markets only to see an incredible recovery during the remainder of the year.  Interest rates plummeted and remained low throughout the year.  These economic changes resulted in material funding level volatility for pension plan sponsors, especially corporate pension plan sponsors.  In this article we evaluate the effects of different asset allocation “glidepaths” typically employed by corporate pension plan sponsors and how they fared during 2020.  These glidepaths are designed to help sponsors reduce the volatility of their funded status as funded status improves.

For this analysis we assume three different glidepath strategies, applied to a pension plan that started 2020 at 85% funded. We hold items like benefit payments and contributions consistent throughout the period to limit the number of competing factors.