$20 Billion Club: DB Sponsors Shift Asset Allocations to Fixed Income

Each year, Russell Investments examines the largest publicly listed corporate defined benefit (DB) plans, those with liabilities of $20B and above, which we refer to as the $20 billion club. This collection of jumbo-sized plan sponsors is uniquely situated to set the trends that the industry may follow. This paper and the following write-up provides an update on these plans' experience over 2018. We have reviewed the changes made by plan sponsors over the year as they continue the trend of de-risking and protecting their large investments in these plans.

After several years of little news on the investment policy front, there have been big changes in asset allocations for the $20 billion club. Fixed-income allocations are up 5%, while equity allocations are down 5%. This shift in asset allocation is the largest de-risking move in recent history in a continuing shift out of risky assets. While some of this could be attributed to the fourth-quarter downturn (with equities down relative to fixed income), some companies have indicated intentions to de-risk their plan assets, such as Honeywell after a 19% increase to fixed income from 2017.

Source: 10-k filings

The $20 billion club also continues to funnel money into their plans. While the $20 billion club contributions were down from the record-breaking contributions in 2017, they were still at historic highs in 2018. Discount rates rebounded by 60 basis points (bps) from the lows in 2017, leading to significant increases in funded status. However, larger gains were not to be, as the global equity markets experienced severe difficulties during the fourth quarter.