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.