Traditional equity investments continued to play a smaller role in the average asset mix for both corporate and public defined contribution funds among the 200 largest retirement plan sponsors, according to the latest survey by Pensions & Investments.
For corporate DC plans in the Top 200, the average combined asset mix of sponsor-company stock, other domestic stock and international stock was 55.8% as of Sept. 30, a percentage that has been slipping annually since the reporting period ended Sept. 30, 2007, when the combined average equity asset mix was 68.3%.
For public DC plans in the Top 200, the average combined mix of domestic and international equities declined to 50.2% for the latest period vs. 54.4% for the 12 months ended Sept. 30, 2007.
The Sept. 30, 2007, reporting period is significant because it closed just before the Dow Jones industrial average reached its record high close of 14,164.53 on Oct. 9, 2007.
DC consultants say plan executives haven't forgotten the lessons of 2008 and early 2009. The sponsors' response has included pursuit of alternative investments that provide some protection against inflation and/or investments not correlated with returns of traditional stocks and bonds.
“There's been a real review (among sponsors) over how their money is managed,” said David Wray, president of the Profit Sharing/401k Council of America, Chicago. “They're asking how can we maximize the opportunity to diversify.”
Executives are exploring alternatives “because of the shock of 2008 when all of the traditional drivers (of diversified investing) didn't work,” he said. “Everything except stable value and cash went down.”
Among clients at Callan Associates, San Francisco, some have been focusing on investments that guard against inflation, such as Treasury inflation-protected securities or real-return funds that include a basket of inflation-protection securities, said Lori Lucas, executive vice president and defined contribution practice leader.
“I expect there will be an increase in (DC) plans adding options with real return,” such as a combination of TIPS, commodities and real estate investment trusts, said Toni Brown, director of U.S. client consulting and head of U.S. defined contribution for Mercer, based in San Francisco.