US - Corporate pension funds lost more than US$300bn over 2008, although many have said they intend to keep equity allocations steady this year, according to consultants Watson Wyatt.
Watson Wyatt senior retirement consultant David Speier said: "Plan sponsors were hit hard with a double whammy in 2008 with severe market declines and new funding rules coming into effect. This combination will require employers to make staggering pension contributions over the next couple of years, at a time when they can least afford them."
The company added aggregate coverage ratios fell 30% from 109% to 79% over the year. Despite the fact the majority of these losses were as a result of equity decline, Watson Wyatt said its analysis had shown most funds had decided to hold firm with stated equity allocations over 2009.
Although stated equity targets did not decline significantly over the year, actual equity allocations fell over the year, to 48% at the end of 2008 from 59% due to falling values on global markets.
Watson Wyatt global head of investment consulting Carl Hess said: "Many pension plan sponsors have remained committed to equity investments as they have been expected to provide the best long-term returns.
"However, the recent financial turmoil shows that large equity positions can create substantial risks. Companies can alleviate some of this risk by adopting liability-driven investment strategies, which utilize bond and derivative markets to better hedge their long-term pension liabilities, while at the same time making sure the overall risk level in their portfolio is one they can live with."
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