DB Sponsors Planning Fewer Changes

A Vanguard study finds defined benefit (DB) plan sponsors are planning fewer design and investment changes than two years ago.

That is, in part, because most respondents’ (57%) plans were already closed or frozen, and the majority of sponsors with open plans are committed to keeping them that way. In addition, the majority of respondents have already implemented some type of liability-driven investment (LDI) strategy.  

Pension risk remains the top concern for plan sponsors, cited by 99% of respondents. As also reflected in the 2010 survey results, most plan sponsors still consider interest rates and the volatility of the equity markets as the most important types of risk.   

Domestic bonds and equities are the top asset classes used. On average, allocation to domestic bonds (35%) has increased compared with the 2010 level (30%), with equity allocations staying roughly the same (47% in 2010 and 49% in 2012). Forty-seven percent of plan sponsors said they would likely increase fixed-income allocations in the next few years, funding this from equities. Many sponsors also stated that they expect to increase their alternative asset allocation (22%), although fewer planned to do so than in 2010.  

Impact on company financials is an even larger concern for plan sponsors in 2012, with significantly more sponsors citing it as the top reason for changing their plan’s design/status than in 2010. Twenty-three percent of respondents in 2012 listed this as the primary reason for changing their defined benefit plan design or status, versus 11% in 2010. High cost volatility tied impact on company financials as the top reason for changes. At the same time, those respondents citing high cost as the primary reason declined from 39% in 2010 to 28% in 2012.  

A report of the survey results is here.