A new survey from Aon Hewitt found that pension plan sponsors are moving their asset allocation away from domestic equities in favour of liability matching investments in hopes to reduce plan volatility.
Aon Hewitt’s survey of 227 large U.S. employers, representing $389 billion in total assets in 2010, revealed that 38% of sponsors surveyed reduced their exposure to domestic equities and the same numbers expect to do so in 2011.
Just 4% expect to increase domestic equity exposure. Plan sponsors are shifting assets to liability matching investments with long duration corporate bonds. Thirty-two percent of plan sponsors expect to increase allocation to long duration bonds, 24% expect to increase allocation to other corporate bonds and just 13% expect to do so for government bonds.
The report also showed that static investment policies are giving way to dynamic investment policies, or “glide paths.” Glide paths have become an increasingly attractive strategy to sponsors as a sensible way to reduce risk, as well as by offering to potentially reduce long-term plan costs.
By 2010, over 25% of sponsors had adopted some form of dynamic investment policy, up from 15% in 2009. In the next year 29% of sponsors expect to be operating some form of dynamic investment policy.
“As funding levels continue to creep up from the dangerously low levels we saw in 2008 and 2009, we see the attitudes of plan sponsors shifting,” said Cecil Hemingway, global head of retirement with Aon Hewitt. “Confusion and anxiety have faded, and most sponsors are making substantial changes in the management of their retirement programs.”