The U.S. stock market's recent pullback probably won't lead highly overfunded corporate pension plans to make pension contributions.
Actuarial smoothing practices, and the fact that contributions are based on calendar-year returns, temper the effects of stock market falls, said Michael J. Prokopow, actuary with Watson Wyatt.
``The current market decline is not significant, since it only reverses excess returns since the beginning of the year,'' Mr. Prokopow said.
The typical practice of smoothing returns over five years means that only 20% of the current year's return will affect funding levels, he said. Moreover, only the returns for the calendar year count. In 1987, investors were up for the year, even though there was a crash in prices in October, Mr. Prokopow said. Corporate plans were about 125% funded as of last fall, according to a Greenwich Associates survey.
California State Teachers' Retirement System's board of trustees approved an RFP for non-U.S. equity managers that is expected to go out in September. The $88 billion fund has $18.5 billion in non-U.S. equity assets.
Up to 16 managers could be selected. A standby pool will be set up to replace managers allocated non-U.S. equity assets but subsequently dropped.
The final filing date for the RFP would be sometime in November, with manager interviews scheduled in January.
Sacramento-based CalSTRS will continue to use the MSCI-EAFE index as a performance benchmark. About 50% of the non-U.S. equity assets are to be allocated for active management and the rest for passive.
The actively managed allocation will consist of MSCI-EAFE and regional European and Pacific Basin mandates.