LARGER EQUITY ALLOCATIONS Pay Off for Large Taft-Hartley Defined Benefit Plans: For the sixth year in a row, the author compares the asset allocations of large and small Taft-Hartley defined benefit pension plans. He discusses why large plans outperformed small plans this year.

Author:Waid, Robert J.

This is the sixth consecutive year that Wilshire Analytics has examined Wilshire Trust Universe Comparison Service[R] (Wilshire TUCS[R]) data to analyze asset allocation differences in large versus small Taft-Hartley defined benefit (DB) plans and examine whether those differences drove returns higher for the year ending March 31, 2018. This installment extends analysis of the strategy to overweight equities in order to determine whether that strategy paid off.

Wilshire TUCS is a cooperative effort between Wilshire Associates Incorporated (Wilshire[R]) and a consortium of major custodian banks and trust companies. Custodians and plan consultants blind-submit to Wilshire their clients' trust plan performance, asset allocation and holdings information. Wilshire then combines that data to create robust benchmarks based on various like universes used by individual plans to make relevant comparisons. (1)


A universe of Taft-Hartley DB plans with five years of quarterly asset-level data (as of March 31, 2018) was selected and separated into large- and small-plan universes based on total plan assets. Large plans are defined as those with more than $1 billion in total assets, and small plans are defined as those with total assets less than $1 billion.


The traditional asset allocation starting point for a pension plan is 60% equities and 40% fixed income (60/40); therefore, it is not surprising to see many plans structured similarly, including small Taft-Hartley DB plans. These plans have an average (2) "equitylike" (3) allocation of 60% and "fixed income-like" (4) allocation of 40%. Meanwhile, the average large Taft-Hartley DB plan continues to have significantly higher exposure, roughly 74%, to equitylike assets. (Figure 1)

The equity bull market, as well as a diversification strategy, is most likely responsible for the 74/26 equity-to-fixed ratio for large Taft-Hartley DB plans, which nearly matched historical ratios of 73/27 for the past five years.

Large Taft-Hartley DB plans continue to be more likely to invest in alternative investments (Figure 2), including investments such as hedge funds and private equity, which are funded by a reduction in fixed income. The difference in exposure between large and small plans once a plan decides to invest in alternatives continues to be surprising. Figure 3 shows that large Taft-Hartley DB plans have continued to increase exposure to alternatives, but allocations to alternatives by...

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