Even with the current disillusionment with the defined benefit system, pension executives appear unaware of just how well pension funds have performed on a long-term basis, Mr. Harris said.
"I think it's important to keep in mind that we've just experienced a very unusual and a very rare event in U.S. financial markets — a dramatic decline in stocks and a fall in interest rates. Nobody who is active in markets today can say with a straight face that they've seen this before," he said.
Instead of looking at just the last two or three years, "any reasonable long-term investor" would find that return expectations for most asset classes had been met over the past 10 years, he said. The sole exception was international equities, returning a meager 3.1% a year, according to the Morgan Stanley Capital International Europe Australasia Far East index.
Over the past 10 years, the U.S. stock market, as measured by the S&P 500 index, was up 10% on an annualized basis through June 30; the J.P. Morgan Global Government Bond index was up 6.6% annually; real estate, based on the NCREIF index, rose 9.6% a year; and private equities increased 14.1% annually through March 31, according to Thomson Venture Economics/National Venture Capital Association.
Not only that, but "active managers have trounced the index" over the 10-year span, Mr. Harris said. "The alpha came through in most every area. I don't think most people know that." Passive funds rank in the 70th percentile or lower, based on the Russell/Mellon universes, he said.
"On a 10-year scenario, everything came in remarkably on schedule. What's uncomfortable is that we soared way above the trend line but came crashing down in the last three (years)," Mr. Harris added.
Looking ahead, long-term interest rates that are close to their 50-year lows suggest it's "a little late to move into fixed income," he said. Returns from bonds are likely to be 4% to 5% for the foreseeable future — possibly at the low end of the range if inflation kicks in, and well below the long-term assumption that most corporate pension funds are expecting, Mr. Harris said.
All told, economic conditions argue "against a massive capitulation to fixed income," he said.