Towers Watson’s analysis of 2014 fiscal year-end asset allocations takes a detailed look at pension disclosures by Fortune 1000 plan sponsors, divided into three categories: frozen pension plans, closed pension plans and open plans. Two thirds (68%) had a pension plan categorized as either frozen or closed, while 32% maintained open defined benefit (DB) plans.
Asset allocations by plan status demonstrate a relationship between plan status and investment risk, with the correlation strongest on an aggregate basis. Sponsors of frozen plans invested more than half their total assets in conservative, lower-variance investment instruments, such as cash and debt, whereas sponsors of plans in which some or all workers continued to accrue benefits (closed and open plans) seemed more inclined to take on riskier investments.
The overall funded status (on a plan sponsor financial accounting basis) of DB plans worsened over 2014, driven primarily by declining interest rates that pushed plan obligations higher. De-risking approaches, such as liability-driven investment (LDI) strategies that hedge against interest rate movements, played an important role in buffering funding declines. Plans with higher allocations to fixed-income assets had smaller funding losses or even modest gains versus plans with higher allocations to equity. On average, plans whose funded status improved invested more than 50% of their assets in debt.
Looking at a consistent sample of sponsors, on average, the total held in public equity declined nearly 4 percentage points from 2013 to 2014. Over the same period, allocations to debt instruments increased at the same pace.
In 2014, nearly 10% of these DB plan sponsors held assets in the form of company securities, and the allocations averaged 4.6% of pension assets among those that did.
Towers Watson based its findings on the pension disclosures of 533 Fortune 1000 U.S. plan sponsors.
The full report can be downloaded from the Towers Watson website.