Thursday, December 2, 2010

Poll Shows Percentage of Pension Plans Using LDI Staying Relatively Steady

An SEI poll of 110 defined benefit plan sponsors says that 50% of 110 respondents (down from 54% in 2009, but up from 20% in 2007) are using liability-driven investing (LDI) in their plans. Just as interesting to me though is that the most prominent definition of LDI in the poll has changed from "matching duration of assets to duration of liabilities) to "a portfolio designed to be risk-managed with respect to liabilities."

"Hmm", says this writer. That first definition sounds like it has some structure to it. The second one sounds like wishful thinking. Perhaps there was no really good answer available in the survey and the most popular choice for 2010 was not necessarily the best answer, but it was the best choice among the answers available.

38% of respondents said that their primary benchmark was to improve funded status. 22% said that their primary benchmark was to minimize or control contributions. Funded status was #1 last year as well, but absolute return was the #2 benchmark in 2009.

This still seems backward to me. Perhaps I am wrong, but it strikes me that where a company has (at least from a mindset standpoint) committed to providing a pension to its employees, the goal should be to provide those benefits at the lowest cost possible (however that company measures cost), at the same time keeping its attendant risks low enough that the pension plan never interferes with the company's ability to run its business.

You can read more details on the survey here:

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