- US defined benefit corporate pension plans;
- Publicly-traded; and
- The 100 largest plans based on pension liability present value (PBO), as determined by NISA from publicly available documents, and re-constituted annually.
- Plan-specific asset allocation and liability data, derived from publicly available sources;
- Implied volatilities for various markets from traded options; and
- Correlations between the various asset classes and liability components from historical data.
PSRX Market List Determination/Data and Sources
- Asset and Liability values – Each plan’s asset market value and liability value are generally collected from a firm’s 10-K. When the 10-K is unavailable (foreign corporations), the firm’s 20-F (if available) and/or annual report are used. When sufficient information is available, only the qualified US portion of the pension plan is used. Asset and liability values are used to compute funded status as of each year-end.
- The largest 100 plans are identified annually based on the 10-Ks filed with the SEC by March 31st. Relevant data from the 10-K is adjusted by NISA to April 30th using market returns for assets and liabilities since the 10-K release date.
- Asset Allocation – Publicly available information on plan asset allocation varies greatly among firms. Many plans provide only a breakdown between equity and fixed income, while others provide a detailed breakdown of all asset classes. For the PSRX, all asset classes are grouped into Equity, Fixed Income or Alternatives by NISA.
- The equity asset class is then sub-classified into US Large Cap, US Small Cap, Developed International, or Emerging Market Equity. When a reported equity allocation does not directly map into one of the above categories (ex. Company Stock), the allocation is placed in the closest available asset class or classes based on NISA’s judgment. In the example above, company stock would increase the allocation to US Large Cap Equity.
- Fixed income asset information provided on the 10-K is mapped into one fixed income asset class for PSRX purposes. The composition of the fixed income component of the PSRX is discussed in the portfolio construction section.
- Alternatives are sub-classified as Real Estate, Hedge Funds, or Private Equity. When obvious, assets are mapped to the appropriate alternative asset class. Due to a lack of consistency in the way firms report Alternatives, asset classes not readily identifiable as equity or fixed income are mapped to “Alternatives”. The graph below illustrates the distribution of the Alternatives asset class across the largest 100 plans for December, 2011.
- Liability Duration – Although the duration of the liability is not directly provided in 10-Ks, some firms report the sensitivity of the liability value due to a given change in interest rates. This information is used by NISA to imply the liability duration. This information is available for approximately 50% of the firms. The graph below illustrates the distribution of liability duration for these plans as of December, 2011. In general, there is a fairly tight grouping among plans. For example, 50% of the reported durations lie between 10.4 and 13.7, with an average duration of 12.1.