Corporate Pension Funded Status Improves, Despite Declining Discount Rates -- NEPC Survey
BOSTON--(BUSINESS WIRE)--Nov 13, 2019--
NEPC, LLC one of the largest independent, research-driven investment consulting firms, today announced the results of its latest survey of corporate and healthcare defined benefit (DB) plan sponsors. The survey focuses on plan sponsors’ economic outlook, utilization of risk reduction strategies, and how they anticipate changing their asset allocation and investment strategies in 2020.
In an environment where corporate pensions are experiencing increased costs and declining discount rates, the survey reveals plans’ funded statuses have improved since 2017. About 60 percent of plans have a funded status greater than 90 percent in 2019, compared to just 46 percent two years ago. These better-funded plans have embraced liability-driven investing (LDI), glide paths, and liability reduction strategies. About three-quarters of plans with a funded status above 90 percent have utilized LDI and two-thirds have 40 percent or less of their assets allocated to equity. Among plans that use LDI, 44 percent have an allocation of 51 percent or higher, compared to just 37 percent and nine percent in 2017 and 2011, respectively.
“The correlation between strong funded status and the use of LDI illustrates that risk management in the form of LDI works to reduce funded status volatility in a declining interest rate environment,” said Brad Smith, Partner in NEPC’s Corporate Defined Benefit Group. “While the use of LDI has remained consistent with prior years, we’ve found that the allocations to LDI have increased significantly over the past two years and are a key contributor to protecting funded status in this market environment.”
Additional top findings of NEPC’s survey include:
NEPC’s survey also demonstrates that traditional alternative investment strategies remain popular, as about two-thirds of respondents (65 percent) have an allocation to alternative investment strategies in 2019. Among plan sponsors who are actively investing in alternatives, 40 percent utilize hedge funds, 38 percent invest in private equity, and 33 percent have an allocation to real assets.
While plan sponsors have placed a strong emphasis on evaluating risk reduction strategies, they have not been widely implemented yet. The most popular risk reduction strategy utilized today is defensive equity, which 22 percent of respondents have implemented. Factor-based equity strategies and tail risk hedging are less commonly used, leveraged by just 9 percent and 5 percent of respondents respectively.
The percentage of healthcare and corporate DB plan sponsors incorporating environmental, social, and governance (ESG) strategies has grown compared to NEPC’s 2018 ESG Survey. Eleven percent incorporate ESG strategies today versus six percent in 2018. However, interest appears to be waning as 16 percent of plan sponsors are considering ESG compared to 28 percent in 2018.
About the Survey
This survey was conducted online by NEPC’s Corporate Defined Benefit Group in September 2019. The survey had 121 respondents across plans of different sizes and focus, including corporations, healthcare organizations, and others. Copyright is held by NEPC.
About NEPC, LLC
NEPC is an independent investment consultant and private wealth advisor with more than 30 years’ experience creating research-based, bespoke investment portfolios that align to the goals of its clients and their constituencies. Combining a proprietary research team dedicated to the long-term challenges facing institutional and high-net-worth investors with our unique client-centric model, NEPC builds investment portfolios defining the future of finance.
We service over 380 retainer clients with $1.1 trillion in assets from our offices in Boston, Atlanta, Charlotte, Chicago, Detroit, Las Vegas, Portland, and San Francisco with a forward-thinking approach to solving the most complex challenges facing the investment industry. To learn more about NEPC, please visit https://www.nepc.com/.
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KEYWORD: MASSACHUSETTS UNITED STATES NORTH AMERICA
INDUSTRY KEYWORD: FINANCE CONSULTING BANKING ACCOUNTING PROFESSIONAL SERVICES
SOURCE: NEPC, LLC
Copyright Business Wire 2019.
PUB: 11/13/2019 09:00 AM/DISC: 11/13/2019 09:00 AM