Data and Research March 1, 2023

Defined Benefit Plans Posted Worst Performance Since 2008 Crisis Last Year

But performance for defined benefit plans did rebound in Q4, according to a new report.

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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%.

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“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.

Benefits March 1, 2023

Employers Increase Focus on Financial Well-Being, but Study Reveals Gaps

A recent study shows that while employees are most worried about day-to-day expenses, companies are prioritizing long-term retirement benefits.

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Companies across the U.S. and Canada have increasingly prioritized well-being programs for their employees since 2020, data from global professional services firm Aon shows.

While the data demonstrates that employers are recognizing the overall correlation between employees’ well-being and their performance, it also shows some disconnect between what employers think is important to the business, what employees say they need and what programs are being offered.

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Aon’s 2022-2023 Global Wellbeing Survey found that employees’ most common financial stressors, such as day-to-day expenses and economic volatility, are not being prioritized by their companies.

Employee well-being encompasses one’s overall physical, emotional, social, career and financial health. Aon’s surveys of employees over the past year showed that employees who agree strongly that their organization cares about their well-being are 1.5 times more likely to stay with that employer.

The survey showed that 70% of companies in North America say well-being is more important than in 2020, compared to 63% globally, and 39% of companies have integrated a well-being strategy into their overall business and talent strategy.

“What we know about wellbeing is that initiatives and strategies aren’t enough,” Aon stated in its report. “A wellbeing strategy that is integrated with the larger company strategy is truly what makes a difference.”

In North America, 52% of companies that responded to the survey said they have increased their investment in well-being programs, compared to 43% globally. But that investment may not be wisely spent, as Aon reported that only 32% of these companies said their programs perform well.

Employee well-being was reported as a top priority in the next five years for companies in North America, trailing only attracting and retaining talent, according to the survey.

The five well-being issues that employees most often face, according to the survey, include mental and emotional health; burnout/languishing (i.e. reaction to prolonged or chronic job stress); working environment/culture; virtual and hybrid work support; and financial risk and stress.

The survey identified current salary and compensation; economic volatility; the ability to pay bills; and the affordability of goods and services among the most significant common financial stresses that employees experience.

However, Aon’s survey showed that the bulk of employers’ financial initiatives focus on retirement savings, even though employees are far more concerned with more immediate financial needs, such as student loans, creating an emergency fund and managing everyday expenses.

According to the survey, company offerings under the umbrella of financial well-being included three long-term options in the top 10: saving for retirement (34%) first, pensions (28%) fourth and providing financial advice (21%) seventh. Meanwhile, day-to-day money management was the least mentioned of the 15 options, emergency funds were only a few spots higher, and credit and debt management ranked low as well, all at about 15%.

“Organizations also need the employees’ perspective on what matters to them,” Aon states in the report.

Annamaria Lusardi, the founder and academic director of the Global Financial Literacy Excellence Center, told PLANSPONSOR she recommends that firms take a “holistic approach” to well-being programs that cover the many financial decisions employees may face.

“One size does not fit all, and problems extend well beyond retirement savings,” Lusardi says. “These programs are a win-win, employers benefit too from them because employees are less distracted at work and more financially secure.”

Lusardi also points out that data from the TIAA Institute GFLEC Personal Finance Index shows that employees spend an average of seven hours per week thinking about and dealing with issues and problems related to personal finances, and three of these hours occur at work. For those with low financial literacy, the totals rise to 12 and seven hours, respectively.

These personal finance issues that employees deal with include not just lack of retirement savings, but also debt problems and emergencies, Lusardi says.

The Aon Global Wellbeing Survey was conducted in partnership with polling company Ipsos. More than 1,100 companies from a variety of industries participated in the survey. Surveys were conducted over a 10-week period from August to November 2022.

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