Will defined benefit plans face headwinds in 2022?


    Ukonga said Mercer is cautiously optimistic about the new year as the market and the reopening of the global economy «normalize somewhat». However, there could be headwinds with the risk of non-transitory inflation, the impact of Omicron and possible new restrictions, the potential for new variants, the political deadlock in the US and US mid-term elections in November, concerns about solving supply chain problems, and geopolitical tensions. Other headwinds include wage increase pressures in response to higher inflation rates and job vacancies that could also increase inflationary pressures.

    «If you already have a strong base, you can better withstand volatility,» said Ukonga. «So with the significant improvements in 2021, the pension plans are in a strong position to face these headwinds when they arise.»

    Ukonga said plan sponsors and administrators were concerned about how quickly markets were falling in spring 2020 and that many regulators had curtailed pension plan payouts because they didn’t know when markets would bottom out with the sudden onset of the new pandemic.

    But the Mercer Pension Health Pulse (MPHP), which tracks the median solvency ratio of defined benefit plans in Mercer’s pension database, was 103% as of December 31, 2021 – a 2% increase from the beginning of 2021.

    Mercer attributed the good year for defined benefit plans to reopening the global economy, vaccine availability, and rising vaccination rates.

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