Financial services companies have the best funded defined benefit plans compared to other business sectors, said a report from BNY Mellon's investment strategy and solutions group.
Financial services pension funds posted a median funded status of 93.5% as of June 30, followed by energy at 86.4%; consumer staples, 86%; utilities, 85.6%; telecomm, 85.1%; materials, 84.6%; industrials, 84.1%; consumer discretionary, 82.6%; health care, 82.1%; and information technology, 76.7%.
“While financial services companies may be in a better position than most sectors to adopt a derisking strategy, many have elected to be aggressively invested,” said Andrew D. Wozniak, head of fiduciary solutions in the investment strategy and solutions group of BNY Mellon Investment Management, in a news release.
Financial services companies' DB plans had a median 54.5% allocation to equities, according to the report.
Mr. Wozniak said in the news release that financial services companies can afford to allocate more to equities because “they have the best ability to take on risk, particularly as their defined benefit pension plans are relatively small compared to the size of companies in the sector.”
Other factors that affect a company's ability to take on risk are the cash required for pension contributions vs. free cash flow, and pension expense vs. operating income, according to BNY Mellon.
With those factors in mind, utilities, materials and telecommunications companies have the least ability to take on risk, the report said.
BNY Mellon analyzed a total of 931 public companies across 10 business sectors.
All numbers are as of June 30.
The full report is available on BNY Mellon's website.