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Pension Priorities Focus on Volatility, Long-Term Strategies

By Stephen Miller  2/16/2011
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U.S. defined benefit pension sponsors said their No. 1 priority for 2011 is finding a way to control funded status volatility, according to service provider SEI's second annual “Top Priorities for Pension Plan Sponsors” poll.

Four out of five participants (84 percent) identified controlling volatility as a priority, with more than three-quarters (76 percent) calling it a “high priority,” making it the top-ranked priority in the poll, which was fielded in early 2011 among U.S. executives who oversee pensions ranging from $250 million to $10 billion in assets.

“Pension management is a complex set of moving parts, and the priorities identified in this poll are a sign that executives overseeing these plans are taking a more holistic view,” said Jon Waite, director of investment management advice and chief actuary for SEI’s Institutional Group. “We’re seeing an encompassing high level priority of ‘regaining control,’ and many plan sponsors are looking externally for expertise and new techniques to get this accomplished.”

While controlling funded status volatility came in as the leading priority, providing senior management with a long-term pension strategy took second, with more than three-quarters (76 percent) of participants listing it as a top priority.  

Top 10 List

The highest priorities for 2011 among U.S. sponsors of defined benefit pension plans are:

1. Controlling funded status volatility.

2. Providing senior management with long-term pension strategies.

3. Improving plans’ funded status.

4. Conducting an asset-liability study.

5. Managing duration effectively moving forward.

6. Implementing a liability-driven investing approach using long-duration bonds.

7. Defining fiduciary responsibilities for trustees and investment consultants.

8. Changing funding policies and timelines.

9. Stress-testing the portfolio to gauge its ability to withstand extreme macroeconomic environments.

10. Implementing a plan design change, such as closing the plan to new entrants or freezing accruals in already closed plans.

Defining fiduciary responsibilities for trustees and investment consultants moved up two spots from the previous year, with nearly two-thirds (64 percent) of participants listing this as a priority. Although ranking seventh, this move is notable, according to Waite, because "it suggests that the Department of Labor’s proposed regulations, which are likely to expand the definition of plan fiduciaries to include those providing investment advice to pension plan sponsors, are weighing on the minds of plan sponsors."

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Pension Volatility: How to React as Funding Forecasts Spike, Fall, SHRM Online Benefits Discipline, November 2010

Pension Tension: Seven Critical Questions Facing Plan Sponsors, SHRM Online Benefits Discipline, August 2009

Liability-Driven Investing Strategies Proved Worth, SHRM Online Benefits Discipline, February 2009

Countering Pension Risk Myopia, SHRM Online Benefits Discipline, February 2009

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