Now plan sponsors are watching as the credit crunch undermines not only equity prices, but also the alternative assets that many plans have piled into, like private equity and hedge funds.

Michael Wright, a principal at Buck Consulting, said that while it’s far too early for plan sponsors to have made any changes in their asset allocations in response to the recent market moves, he is seeing nervousness among plan sponsors who were considering putting assets into alternative investments.

While plans have done stress testing of 130/30 funds or the arbitrage strategies used by hedge funds, “certainly what has happened in the last few months, the volatility that came through here, was outside the parameters of the model,” Wright says. “People who were thinking of putting those in, that’s where we hear ‘We need to reassess this.’

“I know of at least one plan sponsor that was going through a total bundled-vendor search and said, ‘We want to test this without the hedge fund and some of the commodity exposure,’ ” he adds.

Wright says some plan sponsors have been surprised to see where problems showed up in their holdings, as the subprime fallout affected not only mortgage-backed securities but the stocks of financial firms and home builders.

“When you do an asset/liability modeling study for a large plan sponsor after this event,” he says, “the correlation assumptions about asset classes are going to be questioned.”

Filed by Susan Kelly of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.