The vast majority of U.S. defined benefit pension plans — as many as 70 percent — have participants who are still accruing benefits or are open to new employees, according to data from the Pension Guarantee Corp. Many of these plans will need to generate strong returns for years to come in order to remain appropriately funded and pay out future obligations, and many pensions are challenged with funding gaps already.
But today’s low interest rates and high valuations mean that go-to assets, namely public equities and bonds, may not generate the strong returns needed for the long-term horizon for which these plans invest. Consequently, many underfunded and still-accruing pensions are facing serious headwinds.
Plan sponsors, therefore, might benefit from evaluating how private investments can offer a path to higher returns and, ultimately, a greater probability of increasing funding levels and meeting obligations, according to Private Investments: Filling a Pens