Best Funded Pensions Allocate Less to Equity

November 13, 2013 ( – Defined benefit pension plans that are less funded invest more aggressively, according to an analysis by Towers Watson.

The analysis found plans that were less than 70% funded were relatively more aggressive investors, generally allocating more to public equities (50.4%) and less to debt (36%). Plans whose funded status exceeded 90% invested somewhat more conservatively, allocating more than any other group to debt (46.3%), and only 42.3% to public equity.

Allocations to debt investments grew steadily higher as funded status increased. The best funded plans in the analysis also had higher allocations to real estate and private equity than the least funded plans. Plans less than 70% funded allocated 1.7% of their portfolios to real estate investments and 1.9% to private equity investments, compared to 2.1% and 2.3%, respectively, for plans with a funded status of 90% or above.

The analysis also found equity allocations declined as plan size increased and averaged 43.8% for the largest plans versus 50.3% for the smallest.

Towers Watson looked at pension allocations on both an aggregate- and average-sponsor basis as well as by plan size, funded status and other measures. More information is here.