Defined benefit pension plans sponsored by Fortune 1000 companies entered 2023 with an aggregate funded position of 100.1 per cent, remaining almost unchanged at a level of 99.1 per cent by year-end, according to a report by WTW.

The report, which analyzed the funded status and asset allocations of more than 400 plan sponsors, found allocations to public equities declined by almost 21 per cent since 2009, while allocations to cash and debt increased by roughly 17 per cent.

On average, frozen pension plans held roughly 68 per cent of their assets in debt and cash investments versus 53.5 per cent for sponsors of open plans. Notably, the report found 60 per cent of plans showcasing an increase of more than 10 per cent in debt were frozen.

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Adjusting for plan status, as plans’ funded status nears 100%, sponsors tend to increase allocations to debt. When underfunded, pension plan sponsors tend to hold higher allocations to growth assets to help attain full funding.

Sponsors with plans with a funded status of more than 110 per cent at year-end 2023 showed an average higher allocation to growth assets, mostly reflecting the higher prevalence of open plans — which tend to hold riskier portfolios — in this funding bucket.

Between 2022 and 2023, aggregate pension asset holdings to alternative investments (including hedge funds, private equity and real estate) slightly decreased from 18.9 per cent of assets to 17.9 per cent. Rather than indicating a significant shift in strategy, the allocation to such asset classes reflects the diversifying role these assets play in portfolios, as they are generally less correlated with public equities and debt, the report noted.

While the largest plans allocated more than 19 per cent to alternative investments in aggregate terms, smaller plans only held around 5.5 per cent of their portfolios in these investment vehicles by the end of 2023.

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