Survey: American Pensions Shun Risk

(December 23, 2009) – A recent Hewitt survey shows that American pension plans increasingly are looking to step away from risk in many, if not all, of its forms.

According to the consultancy’s Global Pension Risk Survey of 153 pension professionals, 40% of American firms are lowering their equity exposure, with bonds, both corporate (with 37% of plans increasing holdings) and Treasurys (19%), reaping the benefits of a move toward safer holdings. Most strikingly, the survey saw a fivefold increase since 2008 in the number of plans (20%) that would consider outsourcing their entire investment policy to professional advisers.

Somewhat surprising is the lack of change in the outlook toward alternatives, which took a (at least a verbal) beating in 2009; of respondents, 79% claimed that they foresaw no change in their private equity and hedge fund allocations.

The entire idea of defined benefit pension plans also is being increasingly questioned. According to Hewitt, 31% of plans are more likely to think about closing existing plans than they were in 18 months ago; this figure stood at just 11% in 2008. The figure for freezing plans stands at 50%, up from 17% in 2008.

However, while they consider closing or freezing plans, the vast majority of American pensions (83%) are planning on making additional contributions to top up their plans. Not surprisingly, 62% of these respondents claim that these additional pension burdens will, in turn, burden their respective businesses.