With more and more pension plans exiting their domestic equity commitments for a sustainable crutch, plan sponsors stated in a new study that many are looking to long-duration bond vehicles to backup their liability needs.
In a Tuesday announcement, Aon Hewitt revealed that 38% of the plans that participated in a recent study said that they had reduced their allocations to the strategy, with the same percentage looking to do so this year as well. From this same group, which included 227 plans from “large U.S. employers” with a combined $389 billion in total assets last year, only 4% said they would increase their exposure to domestic equity.
The new cure, according to the May 10 press release, is long-duration corporate bonds. Approximately 32% listed that they will increase to this option, and 24% checked yes to other corporate bond opportunities because of its ability to match the liability needs currently affecting their plans.
Government bonds weren’t as heralded as its corporate counterparts, with just 13% stating that they would increase commitments to this sector, the survey stated.
Additional investment allocations included a bump up to global equities, and nearly 20% disclosed that their plans had added weight to their alternative asset class, with just 16% indicating that they “are very likely” to implement longevity-hedging strategies.
With the uncertainty of the marketplace being a constant worry, Ari Jacobs, retirement strategy leader at Aon Hewitt, said that “this shift should bring less volatility and greater predictability to pension plan costs.”
Another possible avenue for reprieve for plan sponsors is possibly through “dynamic investment policies, or ‘glidepaths’” that seek out solutions to funded status, long-term plan costs and risk factors, Aon Hewitt listed in the report.
Collectively, “one-in-five sponsors” have incorporated such an approach last year, and more than 29% of the respondents indicated that they expect the dynamic approach will be a part of their makeup next year.
“As funding levels continue to creep up from the dangerously low levels we saw in 2008 and 2009, we see the attitudes of plan sponsors shifting," Cecil Hemingway, global head of retirement at the Illinois-based firm, said in the announcement. “Confusion and anxiety have faded, and most sponsors are making substantial changes in the management of their retirement programs.”
Despite this push for action, about 32% of the participants stated their plans were frozen, which is up 2% from 2009’s number. Alternately, 16% anticipate a “freeze is likely in the future.”
Presently, Aon Hewitt, the global human resource consulting and outsourcing solutions firm, “partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance,” the statement listed.
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