More Pensions Using Glide Paths

January 17, 2013 ( NEPC’s 2012 Corporate Pension Plan Trends Survey found significant growth in the percentage of pension plans using a glide path, 64% versus 25% in 2011.

A glide path is a systematic de-risking strategy that increases allocations into hedging assets based upon predefined targets. Frequent triggers are funded status, interest rates and/or time. According to the survey, 67% of defined benefit (DB) plans use funded status, 28% use funded status and interest rates, and 6% use interest rates.  

More than half (56%) have consultants manage their glide paths;39% have actuaries do so.  

The survey also found 70% of pension plans use liability-driven investing (LDI). Among those that do not, 56% said it is because their plans are significantly underfunded. The percentage of plans reporting total LDI assets represent 51% or more of their total assets more than doubled (20% versus 9%) from 2011. In general, larger plans reported a higher allocation to LDI assets.  

Other survey findings included: 

  • 71% of plans were either closed or frozen, up from 64% in 2011; 
  • The use of “8% or More” as a return assumption was down materially year-over-year, 17% of plans reported a long-term return assumption of less than 7%; 
  • 33% of plans reported a current funded ratio of less than 80%, versus 16% in 2011; 
  • The majority (60%) of plans are not considering offering lump-sum payouts; and
  • 26% of plans reported they are currently considering the merits of annuity purchase for a portion of their population, 62% have not considered, and 12% considered but rejected the idea. 
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