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Special report: Corporate balance sheet

Corporate plans give fixed income a heavy weighting

NISA Investment Advisors' David Eichhorn
NISA Investment Advisors’ David Eichhorn

The aggregate allocation to fixed income in 2017 for the 100 largest corporate defined benefit plans was 41.2%, according to Pensions & Investments' annual analysis of Securities and Exchange Commission filings. Fixed income had the largest share of assets, with 36 companies on the list allocating more than 40% of plan assets to fixed income. The aggregate allocation has hovered just above 41% since 2014.

The highest fixed-income allocation in P&I's universe belonged to Goodyear Tire & Rubber Co., Akron, Ohio. Goodyear was 93.4% funded at the end of 2017 and had a 91.7% allocation to fixed income. The U.S. plans had $4.98 billion in assets and $5.33 billion in liabilities.

New York-based Charter Communications Inc. had the highest allocation to equities at 72.3% in 2017. The fixed-income allocation was 26.4%, 0.1% was in hedge funds and 1.1% of the portfolio was in cash. With $3.27 billion in assets, $3.57 billion in liabilities and a funding ratio of 91.6%, the company's 10-K said the plans have adopted a derisking glidepath and will "increase the fixed-income allocation as the funded status of the qualified pension plans improves."

"The main theme of 2017, which is glidepath-oriented, is that net funded status improved," said David Eichhorn, president and head of investment strategies at NISA Investment Advisors LLC in St. Louis.

Plans that approached their "end state" in 2017, nearing the 105% to 110% funded range, had the added bonus of being able to sell their risk assets in a strong equity market as they hedged more of their liabilities against duration-matched fixed income, he said. "Discount rates were lower in '17, but in a world where you're getting fully funded you're really not concerned about the source of the improvement. You just wanted to derisk and hedge more," Mr. Eichhorn said.

The aggregate allocation to equities rose slightly to 33.3% from 32.9% in P&I's universe, while the aggregate allocation to alternatives dipped to 16.5% from 17.3% in 2016. In alternatives, private equity dropped to 4.9% from 5.1%, hedge funds to 3.8% from 4.3%, and real estate to 3.7% from 4% the previous year.

The allocation to cash rose to 4.2% from 3.6% in 2016, while 4.7% of assets were allocated to other investments in 2017.

The average long-term assumed rate of return on plan assets continued to slide in 2017. The average declined to 7.13% from 7.21% in 2016, 7.32% in 2015, 7.51% in 2014, 7.55% in 2013, 7.73% in 2012 and 7.94% in 2011.