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“Brexit” and Corporate Pension Plans

The U.K. vote to exit the European Union was a major driver behind the decline in long-term interest rates as well as a decline in global asset prices. Beyond this past quarter, Brexit could continue to impact pension investment strategy. Future uncertainty about global economic growth or “exit” contagion spreading across other E.U. members may be met with “flight to quality” investment actions. This situation will apply additional downward pressure on interest rates and asset expected returns, further weighing down funded status depending on a plan’s liability hedging. Resulting forecasted weaker economic growth could burden corporate cash flows, making it difficult to increase contributions to bridge a widening gap. At the very least, more frequent investment monitoring and rebalancing plan assets back to IPS targets may be required as financial market volatility increases during Brexit negotiations.