Defined Benefit Plans Posted Worst Performance Since 2008 Crisis Last Year

Defined benefit plans in 2022 endured the worst performing year since the global financial crisis of 2008, new data shows. Overall performance suffered, the Q4 2022 Investment Metrics Plan Universe found.

Data across 1,500 defined benefit plans showed the median gross return for all defined benefit plans was negative 14.1%, in 2022, compared to 2021’s positive performance of 14.6%. The most comparable period, according to Investment Metrics, was Q4 2008, which had a gross median return of negative 24.1%.

“In 2022, there was nowhere to hide,” says Brendan Cooper, head of client consulting and research at parent company Confluence, via email. “A surprise [was] that corporate plans posted the worst calendar year performance by plan type … given their overweight to fixed income versus other plan types, which you could expect to be more conservative [and/or] less risky.”

Driving the negative performance for corporate defined benefit plans were lower returns and protection from fixed-income allocations, the report stated.

For corporate DB plans, the median asset allocation was more than 50%; for public plans, Taft-Hartley plans and foundations and endowments, it was below 30%; and for high-net-worth pensions, it was less than 20%, the data showed.  

“Corporate defined benefit plans maintain the heaviest weighting to the fixed-income asset class by a substantial margin,” the report’s Q4 plan allocation analysis stated. “This clearly did not help them in 2022. When comparing the asset allocation of Q3 2022 to Q4 2022 we saw public plans, endowments & foundations, and high net worth individuals shift their asset allocation from fixed income into public equities.”

Median defined benefit plan performance for corporate pensions was worse than public, Taft-Hartley and endowment and foundation plans for the 2022 calendar year, the data showed: The one-year median performance for corporate plans in 2022 reached nearly negative 20%, compared to every other plan type, which posted negative returns less than 15%.   

High-net-worth-eligible individuals, who have contributed up to the annual IRS limit in a DC plan and want to invest additional amounts for retirement, can save above the threshold for a 401(k) in a personal pension or in a cash-balance plan at work.

The best news in the report was that pension plan performance actually went up in Q4, as the median quarterly return for the same plans was a positive 5.2%.

The data showed:

• Defined benefit plans posted a median net return of 5.39% for Q4 2022, as performance rebounded after three consecutive quarters with negative returns to begin the year; 
• Endowments and foundations saw the best performance compared to other plans, with a median net return of 6.37%; and
• Health and welfare plans delivered the worst performance for the quarter, with a median net return of 3.18%.

Investment Metrics’ Q4 2022 report was sourced from more than 4,000 institutional retirement plans. Additional historical data came from the proprietary Investment Metrics Defined Benefit Plan Universe, comprising 1,502 corporate, public, Taft-Hartley, foundation and endowment and high-net-worth defined benefit plans, with total assets of $1.2 trillion.  

The Plan Universe report is updated quarterly. The report is available to download.