SEI: Bond yields, funding, volatility highlight challenges, corporate plans say

Low bond yields, market volatility and funding requirements were the largest challenges corporate defined benefit plan executives faced in the first half of 2012, according to a SEI survey.

Thirty-five percent of respondents had a DB plan less than 80% funded, while 55% of the plans were closed or frozen. Only 1% were in the process of terminating. However, when asked hypothetically whether they would terminate a pension plan when it is 100% funded, 44% of respondents said they would.

The majority of respondents, 52%, are already investing a portion of their pension assets in liability-driven investing strategies and 40% are using or developing a glidepath strategy.

The federal highway bill that changes how corporate pension liabilities are calculated did not have a large effect on respondents as 3% said it will have a significant impact, 19% moderate impact, 21% slight impact, 36% no impact and 21% said it was too early to tell. The bill was signed by President Barack Obama in July.

The use of alternatives declined to 65% from 78% in the first half of 2011. Only 71% of DB plans with $1 billion or more in assets invest in alternatives compared to 96% in the first half of 2011. Fifty-six percent of respondents had a 1% to 20% allocation to alternatives with 9% having larger allocations.

The survey, conducted in July and August, polled 70 U.S. pension plans and 40 Canadian plans; it is the first time Canadian plans have been included. None was an SEI client.