For the coming year, consultants said corporate plans will be the ones to watch. All the details about investment returns for the latest year are being "overshadowed by the implications of the Pension Protection Act," with a moment of decision approaching for corporate plan sponsors, said Alan D. Biller, the president of Menlo Park, Calif.-based Alan D. Biller & Associates Inc.
The regulatory changes afoot are heralding the moment when "truth in pension funding" becomes the rule. There may be a flurry of changes in either investment structure or plan provisions as companies get ready for 2008, especially among sponsors facing "endangered or critical status" of falling below 80% or 60% funding respectively, Mr. Biller predicted.
Other highlights from the 2006 P&I survey include:
•The aggregate asset mix for the top 1,000 U.S. DB plans showed domestic equity with 43.7%, down 1.6 percentage points; domestic fixed income with 25.4%, up 0.5 point; international equity and international fixed income both unchanged at 16.8% and 1.2% respectively; cash at 1.6%, up 0.2 point; private equity unchanged at 3.6%; real estate equity at 3.9%, up 0.2 point, mortgages at 0.3%, down 0.5 point; and "other," at 3.5%, up 1.2 points.
•The survey suggests that size has its advantages, with the largest 100, 50 and 25 sponsors, respectively, posting gains of 8.7%, 9% and 9.3%.
•The survey showed very little change among the funds' market share, with public funds accounting for 54.3% of the overall assets of the largest 200 sponsors; followed by corporates with 35.2%; miscellaneous funds, with 8.1%; and union funds with 2.4%. A year earlier, the respective percentages had been 54.1%, 35.4%, 8% and 2.5%.
•The defined benefit plans among the 200 largest retirement funds reported $1.15 trillion in internally managed assets, an increase of 2.2% from a year earlier.
•For the 12 months, defined benefit assets invested in high-yield bonds dropped 6.7% to $50.3 billion.
•The defined benefit plans in the top 200 also reported $51.8 billion in Treasury inflation-protected securities, $74 billion in overlay strategies and $32.7 billion in portable alpha strategies — all new categories in this survey.
•The domestic equity managers most used by top 200 defined benefit sponsors were Barclays Global Investors, with 56 mentions, followed by State Street Global Advisors and Wellington Management Co. LLP, with 31 each. The most used domestic fixed-income managers were Western Asset Management Co., 38; BlackRock Inc., 34; and Pacific Investment Management Co., 32. The most used international managers were Capital Group, 43; BGI, 35; and AllianceBernstein LP, 31.
• On the defined contribution side, the most-mentioned investment managers overall were Vanguard Group Inc., 81 mentions; Fidelity Investments, 80; and SSgA, 64. Equity leaders were Vanguard, Fidelity and BGI; mentioned the most for fixed income were PIMCO, Vanguard and Fidelity; and for international equities, Capital Guardian, Fidelity and SSgA.
(updated with correction)