Tuesday, May 29, 2012

US pensions' equity holdings the highest among OECD nations

US pension funds are still heavily invested in equities - close to 50% of assets. In fact US pensions have the highest concentration of equities among all OECD nations.

Source: DB (click to enlarge)

This is somewhat troubling, particularly for defined benefits corporate pensions. That's because there are risks of a feedback loop. When equities decline, pension funds become underfunded, forcing some companies to inject cash into their pension accounts. And that in turn may add to the declines in equity prices.

But no worries. Corporations are shifting to defined contributions plans, letting their employees take this equity risk. And for the remaining defined benefits plans, the pension managers will use corporate bonds to discount pension liabilities - the wider the spread, the lower the "present value" of what they owe to future retirees.

Good luck with your retirement plans.

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