Defined benefit (DB) pension plan sponsors are taking a closer look at risk in their plans, and according to a new survey from Mercer, are moving away from traditional investment strategies.
More than 190 Canadian DB plans participated in Mercer’s 2010 Asset Allocation Survey for Canadian Defined Benefit Plans. The plans in the survey range in size from $100,000 to over $10 billion in assets.
“The traditional balanced fund is now the exception rather than the rule for Canadian DB plan sponsors,” said Rob Stapleford, principal with Mercer’s Investment Consulting business and senior consulting actuary in the Toronto practice. “This finding is not surprising.”
The survey found that plans are moving away from a 60/40 equity/bond mix and more toward a 50/50 equity/bond allocation. This higher bond allocation was attributed to plans having a higher proportion of liabilities with respect to inactive members.
“Plan sponsors show great interest in the asset allocation decisions of their peers, and we have seen many initiate transitions toward more diversified asset mixes,” added Stapleford. “The results lead us to believe that de-risking strategies will continue to gather momentum, although the pace that they will be implemented may be slow given low current yields on fixed income investments. We also anticipate growing interest in dynamic de-risking strategies, which lock in a portion of investment gains as they occur.”
Additional key findings
- Alternative investments and currency hedging are more prevalent among larger plans.
- Approximately three-quarters of the plans review their strategic asset allocation every three to five years.