Forty-nine percent of U.S. multiemployer defined benefit pension plans face funding ratios of 80% or less in 2010, and 67% are focusing on liabilities over returns when setting their investment strategies, according to a survey by SEI Global Institutional Solutions.
According to a news release on the survey’s results, 26% of respondents’ plans were below 65% funded, putting them in the 2006 Pension Protection Act’s “red zone” category, and 23% were 65% to 80% funded, putting them in the PPA’s “yellow zone” category. The remaining survey respondents’ pension plans were above 80% funded.
Eighty-seven percent are invested in alternatives; of those, 61% had allocations to alternatives of 15% or less. Real estate was the most popular alternative investment, with 84% of respondents invested in the asset class, followed by hedge funds at 48% and private equity at 42%.
“We’re seeing a lot more use of alternatives,” Jon Waite, director of investment management advice and chief actuary for SEI’s Institutional Group, said in a telephone interview.
He said many single-employer plans have been invested in real estate for years, but movement into other alternative asset classes such as private equity and hedge funds has been more recent. Thirty-nine percent of respondents said they had increased their allocation to alternatives in the last 12 months.
In addition to poor funded status, managing volatility and an increased interest in alternatives, the survey identified a renewed scrutiny of the investment process as a fourth key issue to multiemployer DB plans.
Eighty-four percent of respondents reported a reliance on consultants for selecting manager finalists, and 23% said trustees would like to reduce the time spent evaluating and choosing from the consultants’ recommendations. Seventy-three percent of respondents using a consultant said it had been more than five years since they had changed their consultant or adviser.
The survey, Four Key Issues Impacting Multiemployer Pension Trustees in 2010, which includes representatives of 31 multiemployer pension plans, none an SEI client, was conducted in May, according to the news release.