Industry News
Print
CRR Issues Brief on Pension Plan Asset Allocations
On April 9, 2019, the Center for Retirement Research at Boston College (CRR) released its issue brief, Maintaining Target Allocations: Effects in Plan Performance. According to CRR, state and local government pension plans manage about $4 trillion in assets for almost 20 million plan participants.
Typically, pension plans set target asset allocations, but allow actual allocations to vary within target ranges. When investment performance causes the asset allocation to diverge from the targets, the chief investment officer is responsible for rebalancing the funds across various asset classes within the target ranges.
The key findings include:
- Over the time period from 2001-2017, in aggregate, public pension plans moved 8-10% of their assets yearly with target allocations shifting from traditional stocks and bonds into alternative asset classes (i.e., private equity, hedge funds, commodities and real estate).
- During the financial crisis, this shift resulted in some of the decline in equity values and partially excluded plans from the stock market rebound from 2010-2017.
- From 2001-2017, most pension plans stayed relatively close to their target allocations, but a looser approach within the target ranges would have only modestly improved overall plan performance.
The brief is available here.