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October 24, 2017 at 08:07 AM
Nineteen percent of defined benefit plan sponsors in a survey released Tuesday by investment consulting firm NEPC reported funded status of more than 101%, up from 9% a year ago.
NEPC noted that this was the highest funded status since it inaugurated the survey in 2011.
Of the overfunded plans, 65% invest in alternatives, and 55% use liability-driven investment strategies, with a majority of users executing with derivatives.
The rising of variable rate premiums, implemented by the Pension Benefit Guaranty Corp., also had a strong effect on the improved funded status, according to NEPC. In its 2016 survey, a quarter of plan sponsors said they were considering additional contributions.
The new survey found that plan sponsors have become more amenable to reviewing and changing their glide paths. Seventy percent of respondents reviewed their glide path in 2017, and 35% of these made a change by modifying future trigger points. Twelve percent de-risked the portfolio.
“The PBGC rate premium decision has had a major and lasting impact on plan sponsors and their strategies,” Brad Smith, a partner in NEPC’s corporate practice, said in a statement.
“Not only have we seen an increase in overfunded plans to help hedge against these premiums, we’re also seeing plans accelerate the de-risking process and move down the glide path more quickly. With so much at stake, we don’t expect plan sponsors’ anxiety toward rate premium increases to subside.”
The 2017 NEPC survey, conducted online in August, captured 143 plan sponsors’ views, including several NEPC clients representing approximately $169 billion in defined benefit assets. The median plan assets among respondents was $750 million and the average plan assets were $1.2 billion.
