Wednesday, February 9, 2011

Top Concerns for Pension Plan Sponsors

An SEI 'Quick Poll' found that controlling funding status volatility is the number one priority for defined benefit plan sponsors. When I look at the Top 10, however, a common theme emerges: Managing Risk.

Here are the Top 10 (in traditional as compared to Letterman order):

  1. Controlling funded status volatility
  2. Providing senior management with long-term pension strategies
  3. Improving plan's funded status
  4. Conducting an asset-liability study
  5. Effectively managing duration moving forward
  6. Implementing a liability-driven investment (LDI) strategy using long 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
It's time to make a few comments on this list. First, who comes up with these choices? #9 was clearly the brainchild of someone with too much time on their hands trying to sound smart. Isn't that what you do as part of #4? Second, all ten of them address some element of risk management. Third, of the companies that chose #8, I wonder for how many of them, changing funding policies is the same thing as actually having a funding policy.

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