PLANSPONSOR - February/March 2018 - 54
DB FOCUS
Trends in Risk Assets
S
ince 2006, when the Pension
Protection Act (PPA) motivated corporate
sponsors to increasingly focus on
their defined benefit (DB) plans' funded
status, investment portfolios have taken
on higher proportions of bonds as a hedge
for pension obligations. While corporate
plans have made progress, aggregate funding
levels still hover around 80%, meaning
many plans still have to invest or contribute
their way to full funding. Accordingly,
the asset allocation of DB plan portfolios is
still about half return-seeking assets, and
most of that is public equities.
Equities have historically offered high
long-run returns, and over the last few
years have gained substantial ground-
for large-cap U.S. issues, an annualized
five-year return, as of January 31, was
just shy of 16%. But these strong returns
have brought high valuations; therefore,
DB sponsors, and their consultants and
investment managers, are looking for
ways to protect those gains, as well as to
find new opportunities in risk assets.
In its recent commentary on Fortune
1000 companies for fiscal 2016, consulting
firm Willis Towers Watson points out that,
as corporate defined benefit plans have
built up their fixed-income hedging portfolios,
return-seeking " risk assets " have been
on the decline, averaging about 56% in
2009 and about 50% in 2016. Over those
years, equities were pared from an average
allocation of about 51% to about 42%-
although holdings of private equity, hedge
funds and real estate increased (see chart).
By the consulting firm's measure,
U.S. corporate defined benefit plans'
bond portfolios have actually overtaken
those plans' public equity-though, with
the addition of alternative assets, risk
54 PLANSPONSOR.com February-March 2018 Art by Qieer Wang
Many sponsors still are compelled to grow their portfolios
portfolios are still larger, at 50%, vs. 43%
for bonds.
With the overall corporate funded
status for these large plans at 81%, many
sponsors continue to be compelled to
grow their portfolios. " Plans have made
a lot of progress in the last 12 months in
equities, " says Mark Brubaker, managing
director at Wilshire Associates, Santa
Monica, and head of its outsourced chief
investment officer (CIO) practice, " and
while those that are better-funded are
moving more toward liability hedging,
many are for the most part counting on
the equity markets, and other returnseeking
assets, to close that funding gap. "
Some observers are enthusiastic about
the prospects for equities. " We're coming
out of an environment where geopolitics
and central bank policies have been
driving the equity market, " says Maddi
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PLANSPONSOR - February/March 2018
Table of Contents for the Digital Edition of PLANSPONSOR - February/March 2018
25 Years of Retirement Plans
2017 DC Survey: Providers
2018 Best In Class 401(k) Plans
Trends in Risk Assets
What Lower Fees Reveal
Sandwiched Between
Nondiscrimination Testing
PLANSPONSOR - February/March 2018 - Cover1
PLANSPONSOR - February/March 2018 - Cover2
PLANSPONSOR - February/March 2018 - 1
PLANSPONSOR - February/March 2018 - 2
PLANSPONSOR - February/March 2018 - 3
PLANSPONSOR - February/March 2018 - 4
PLANSPONSOR - February/March 2018 - 5
PLANSPONSOR - February/March 2018 - 6
PLANSPONSOR - February/March 2018 - 7
PLANSPONSOR - February/March 2018 - 8
PLANSPONSOR - February/March 2018 - 9
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PLANSPONSOR - February/March 2018 - 12
PLANSPONSOR - February/March 2018 - 13
PLANSPONSOR - February/March 2018 - 14
PLANSPONSOR - February/March 2018 - 15
PLANSPONSOR - February/March 2018 - 25 Years of Retirement Plans
PLANSPONSOR - February/March 2018 - 17
PLANSPONSOR - February/March 2018 - 18
PLANSPONSOR - February/March 2018 - 19
PLANSPONSOR - February/March 2018 - 20
PLANSPONSOR - February/March 2018 - 21
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PLANSPONSOR - February/March 2018 - 27
PLANSPONSOR - February/March 2018 - 28
PLANSPONSOR - February/March 2018 - 29
PLANSPONSOR - February/March 2018 - 2017 DC Survey: Providers
PLANSPONSOR - February/March 2018 - 31
PLANSPONSOR - February/March 2018 - 32
PLANSPONSOR - February/March 2018 - 33
PLANSPONSOR - February/March 2018 - 34
PLANSPONSOR - February/March 2018 - 35
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PLANSPONSOR - February/March 2018 - 42
PLANSPONSOR - February/March 2018 - 43
PLANSPONSOR - February/March 2018 - 44
PLANSPONSOR - February/March 2018 - 45
PLANSPONSOR - February/March 2018 - 2018 Best In Class 401(k) Plans
PLANSPONSOR - February/March 2018 - 47
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PLANSPONSOR - February/March 2018 - 49
PLANSPONSOR - February/March 2018 - 50
PLANSPONSOR - February/March 2018 - 51
PLANSPONSOR - February/March 2018 - 52
PLANSPONSOR - February/March 2018 - 53
PLANSPONSOR - February/March 2018 - Trends in Risk Assets
PLANSPONSOR - February/March 2018 - 55
PLANSPONSOR - February/March 2018 - What Lower Fees Reveal
PLANSPONSOR - February/March 2018 - 57
PLANSPONSOR - February/March 2018 - Sandwiched Between
PLANSPONSOR - February/March 2018 - 59
PLANSPONSOR - February/March 2018 - Nondiscrimination Testing
PLANSPONSOR - February/March 2018 - 61
PLANSPONSOR - February/March 2018 - 62
PLANSPONSOR - February/March 2018 - 63
PLANSPONSOR - February/March 2018 - 64
PLANSPONSOR - February/March 2018 - Cover3
PLANSPONSOR - February/March 2018 - Cover4
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