Public work is a different ballgame, but in the private sector, defined benefit pensions have largely been replaced by 401(k) plans. However, there’s still a massive amount of pension liabilities floating around in the market, and with mass retirement setting in, how those funds are managed can affect retirees everywhere – regardless of work history.

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“There remains $1.8 trillion in assets in the largest 100 public companies’ pension plans, according to benefits consultant Milliman. Strong market returns have been a tailwind for pension plans, with the funded status of the programs at the best level (98.4%) since before the global financial crisis and up from 86.7% last March,” says Nationwide’s Mark Hackett.

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In simple terms, as more pension recipients enter retirement, managers of that capital usually dial back risk, meaning elevated fixed income exposure. That can skew return assumptions lower because bonds are less risky than equities.

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“These programs face demographic challenges as the percentage of workers at or near retirement grows. These challenges contributed to a gradual adjustment in fixed income allocations in pension portfolios, from 29% in 2005 to 51% in 2020. This shift occurred despite the yield on the 10-year Treasury falling from 4.4% to 0.9% over the same period,” adds Hackett.

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