Pension Funds Pay Price for Shunning Stocks: Chart of the Day

Company pension funds are so reluctant to own stocks that a two-year bull market has done little to bolster their financial position, according to Tobias Levkovich, Citigroup Inc.’s chief U.S. equity strategist.

The CHART OF THE DAY tracks the percentage of assets that traditional defined-benefit plans have invested in shares, bonds and mutual funds since 1985, based on quarterly figures compiled by the Federal Reserve.

Stocks have accounted for a smaller share of the plans’ holdings than debt securities for the past four quarters, the longest streak in more than a quarter-century. The gap narrowed by half a percentage point in the first quarter to 1.4 points.

“Corporate pension asset allocation has been slow in shifting back to equities” after an exodus in 2008, when prices plunged, Levkovich wrote two days ago in a report. Stocks were 36 percent of assets as of March 31. They peaked at 62 percent five years earlier.

Funds run by companies in the Standard & Poor’s 500 Index could cover only 84 percent of projected payouts at the end of last year, according to S&P. Pension managers have to put more money into stocks to bridge that gap, Levkovich wrote.

Since falling to a low in March 2009, the Russell 3000 stock index has generated a 110 percent total return. That’s about six times the return on the Barclays Capital Aggregate Bond Index, a similarly broad benchmark for fixed-income securities.

Defined-benefit plans make fixed monthly payments to retirees. They have been supplanted at many U.S. companies by defined-contribution plans, such as 401(k) programs, which allow employees to make tax-free investments.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.