U.S. corporate pension plans are reconsidering their hedging glidepaths in their liability-driven investing strategies in the face of new mortality assumptions, said a survey from NEPC.
According to the 2015 Defined Benefit Plan Trends Survey, 69% of surveyed U.S. corporate plans conducted a formal review of their strategy. Of those pension funds that conducted a review, 39% redefined their glidepath and 10% revised their strategy to take the new assumptions into account.
“For years, studies have shown that baby boomers will be the longest-living generation on average, and many are relying on defined benefit plans for income over the next 30-plus years,” said Brad Smith, partner in NEPC’s corporate practice, in a news release. “While there are nuances to managing the impact of improved mortality, there can be meaningful differences in how a plan sponsor should construct and implement a hedging strategy and glidepath.”
Pension funds that utilize LDI strategies have steadily increased in the past few years. Of the funds surveyed, 26% have an allocation of 50% or more to LDI strategies, compared with 9% in 2011.
Beyond LDI, pension funds have also derisked through lump-sum offers to terminated vested employees who have yet to retire. Sixty-five percent of surveyed pension funds have made such offers, while 18% said they plan to do so.
NEPC surveyed 102 plan executives online in August, including a number of NEPC clients, which represent about $130 billion in U.S. corporate pension plan assets.
