NEPC, LLC conducted a poll of Corporate and Health Care Pension Plan Sponsors to ascertain their views on pension strategy, risks and investments amid the heightened uncertainties arising from the upcoming U.S. presidential elections, the ongoing COVID-19 pandemic and economic dislocation. This comes on the back of a similar poll NEPC conducted in March at the onset of the pandemic in the U.S.
The following are our top findings from the survey:
- Declining equity markets1 and discount rates have impacted funded ratios: NEPC’s 2019 survey of trends in defined benefit plans indicated that 58% of respondents had a projected benefit obligation funded ratio (PBO) greater than 90%. This decreased by 20 percentage points in the current poll as 38% of respondents had a PBO funded ratio greater than 90%.
1 As of June 30, 2020; funded status response was as of June 30, 2020.
- Sponsors state that COVID-19 is the greatest threat to their investment program, according to 41% of respondents. The U.S. election and worries around declining expected return assumptions were next in the ranking order of most frequently cited concerns, according to 23% and 25%, respectively, of respondents.
- Majority of large-plan sponsors—those with over $1 billion in assets—that participated in the poll have issued debt in 2020: Of the large-plan sponsors, 54% of the respondents said that the company issued debt in 2020. Most large-plan sponsors—61%—cited using the proceeds to help finance company operations. Of the large-plan sponsors, 39% of the respondents cited other reasons for use of the proceeds, including debt refinancing, building or construction projects, additional contributions to the pension plan, and share buybacks.
- Only 24% of plan sponsors with assets below $1 billion issued debt in 2020.
- No material changes over two years in plan sponsors preparing for pension risk transfers. In the poll, 12% of plan sponsors stated that they are planning a full plan termination or partial risk transfer (retiree or lump sum). This response is consistent with NEPC’s 2019 Defined Benefit Trends Survey, where 17% of respondents indicated they were planning pension risk transfers at that point in time.
- Majority of investors are maintaining exposure to value equities. Of the poll respondents, 77% said they are making no changes to their value equity managers; 12% are rebalancing proceeds to value investments from growth managers. Among those polled, 7% stated they are reducing allocations to value equity managers and 4% do not have an allocation to value today.
- Majority of plan sponsors—75%—are not anticipating future pension relief over the next year.
The poll was conducted between September 9 and 30, 2020. Respondents represent a diverse array of corporations and not-for-profit healthcare organizations. Total estimated assets of poll respondents are over $101 billion with 64% of survey respondents overseeing more than $500 million in assets. Please see the presentation providing additional insights on the results.
NEPC’s Corporate Pension Solutions Group assists corporate and healthcare pension plans with liability reduction and plan terminations. The team is also actively reviewing the markets and highlighting key liability and funded status metrics in our monthly and quarterly Pension Monitor.