Pulse Report Picks Up Public, Private DB Perspectives

According to the Q2 Pyramis Pulse report, 38% of corporate defined benefit (DB) plan sponsors cited “current funding status” as a top concern, while 30% cited “volatility” (perhaps not surprisingly, 43% of corporate plan sponsors agree that market volatility is more problematic today).   While the former was a top concern among public DB plan sponsors as well, the “low return environment” was cited as a top concern by 30% in that group (see  Asset Allocation Diverging Among DB Corporates, Private Sponsors ).

Funded Status

Among corporate DB plan sponsors, nearly a quarter (23%) are at least 90% funded as of Q1, while more than half (55%) say that “capital markets performance” is the biggest threat to their funded status.   Nearly three-quarters (65%) of public plan sponsors agreed with that assessment, though just 10% were at least 90% funded at the end of first quarter, and 53% of plan surveyed were below 70% funded at that point (compared with just 19% of corporate plan respondents).

Among other corporate DB plan findings:

• 25% cite “interest rates, credit spreads, and discount rate” as biggest threat to funded status
• 57% expect annual returns to be below 8% for next five years
• 7% expect annual returns to be above 8.5% for next five years
• 39% are below target ranges for equity allocations
• 29% are above target ranges for fixed income allocations
• 28% are rebalancing existing assets back to target ranges
• 28% are rebalancing new contributions back to target ranges
• 52% plan to contribute significantly more to their DB plan this year compared to last year (at least 10% more)
• 39% are decreasing US equity allocations
• 31% are increasing investment grade fixed income allocations
• 30% are increasing long bond, 28% increasing corporate bond, 13% increasing high yield allocations
• 14% are increasing hedge funds/Fund of Funds allocations
• 53% believe actively managed equity strategies will deliver alpha in the next six months
• 56% believe pension allocations will shift significantly to fixed income and/or immunized strategies
• over next 10 years
• 27% are currently using Liability Driven Investing (LDI)
• 46% implement LDI by extending durations of existing fixed income assets
• 13% implement LDI by credit-based fixed income strategies (corporate bonds)
• 28% cite not wanting to lock-in underfunded status as primary reason for not using LDI

Other public DB plan findings:

• 20% cite "ability to make contributions to the DB plan" as biggest threat to funded status
• 68% expect annual returns to be below 8% for next five years
• 2% expect annual returns to be above 8.5% for next five years
• 48% are below target ranges for equity allocations
• 38% are above target ranges for fixed income allocations
• 42% are rebalancing existing assets back to target ranges
• 61% plan to contribute about the same amount to their DB plan this year compared to last year
• 37% are decreasing US equity allocations
• 23% are increasing non - US equity (EAFE), 21% increasing emerging markets equity, 22% increasing global equity allocations
• 17% are increasing high yield allocations
• 17% are increasing hedge funds/Fund of Funds allocations
• 58% believe actively managed equity strategies will deliver alpha in the next six months
• 38% believe pension allocations will become more global (both fixed income and equity) over next 10 years
• 22% believe traditional asset mix will prevail (60/40 equity/fixed) over next 10 years
• 19% believe allocations will shift significantly to alternative assets over next 10 years
• 40% intend to fund GASB-45 trust accounts in the next 6 to 12 months

The Pulse survey was based on responses of 154 corporate and 79 public DB plan sponsors conducted from April 13 through April 17, 2009.   For more information, you can contact PyramisMarketing@pyramis.com or visit www.pyramis.com .