The heyday of equities in corporate defined benefit plans is over.
Corporate pension plan allocations to equity have declined to a new low, according to two reports by Standard & Poor's and PricewaterhouseCoopers.
And the fixed-income allocation has risen to a new high.
At the end of 2014, the equity allocation stood at 44.45%, the lowest since S&P began tracking it in 1999, with the exception of 2008 when, in the midst of the financial crisis, it was slightly lower at 43.71%.
Fixed-income allocation was 43.88%, a record high in the S&P reporting.
In another study, a PwC report last week on companies in the Fortune 100, the median defined benefit plan equity allocation was 38% at the end of 2014, down 26 percentage points from a 64% median allocation in 2007. During the same period, the fixed-income allocation rose to 42% from 29%, the PwC data show.
“I do think it is fair to say at least in the short term I don't see any expected reversal” in the trend toward lowering the equity allocation by corporate plans, said Ken Stoler, Los Angeles-based partner, PricewaterhouseCoopers LLP.
“From the companies I work with I haven't heard any starting to think in that direction” of raising their equity allocation, Mr. Stoler said. “If anything they are looking to move further in that direction of (derisking) rather than reverse course and start pumping the equity portion of their portfolios back up.”
Jay Love, Atlanta-based partner and senior consultant, Mercer Investment Consulting, said of the current equity allocation trend: “I don't feel like that's at a low point and likely to rise up.”
In moving away from equities as the market enjoyed positive returns the last six calendar years, including double-digit returns for five of them, corporate pension executives lost out on some upside, Messrs. Love and Stoler said.
“That is certainly part of the tradeoff (of) moving ... into fixed income while the equity market is going strong,” Mr. Stoler said. “They are missing out. That is part of the business decision companies are making. They understand there is a potential for greater return ... of being more heavily in equities.”
But the effects of the financial market collapse still concern the executives, Messrs. Love and Stoler said.
The crisis reduced the S&P 500 companies' aggregate funded levels to the 78% in 2008 from 104% in 2007, according to the S&P analysis.
Corporate plan executives “are comforted that we are less subject to that potential downside” of the equity market,” Mr. Stoler said. Now they “are looking at the assets and liability more in tandem rather than ... managing the assets separately from this big liability.”