U.S. corporate defined benefit plans continue to see their funding ratios improve and remain focused on funded status as the majority express bearish sentiment, according to a new survey from investment consultant NEPC.
Of the 51 corporate pension plan executives surveyed by NEPC in September, 53% gave a bearish view of markets over the next 12 months. The last time NEPC conducted a similar survey in 2021, 56% of respondents said they were bullish regarding markets.
In the survey report, NEPC said their clients are more focused on their funded status rather than their portfolio's absolute return because they expect an economic slowdown.
Fortunately, funding ratios have improved in the two years since the last survey, with 74% of respondents reporting a funding ratio of over 90%, compared with 63% of respondents in the 2021 survey.
"It pays to be a saver," said Jake Mallinson, consultant with NEPC's defined benefit team, in a Nov. 9 news release. "Higher rates and higher inflation are typically good news for funded status and frozen plans, as higher discount rates reduce the value of liabilities. While equity valuations are down, forward-looking return assumptions (especially for fixed income investments) fare better."
The focus on funded status has led to more assets allocated to liability-driven investments, with 41% of assets allocated to LDI, up from 30% in 2021.
When asked whether they have completed a formal review of their glidepaths, 80% of respondents that have LDI strategies said they had done so, and of that total, 65% said they had confirmed their glidepath structure and made no changes, 20% just modified future trigger points, 10% further derisked the portfolio and 5% re-risked the portfolio.
The survey results are available on NEPC's website.
