Top Pension Priority in 2011: Meeting Funding Goals

(February 8, 2011) — A poll by SEI has revealed that pension sponsors identify controlling volatility and establishing long-term strategies as top priorities for 2011.

“Effectively addressing this year’s priorities will be no easy task for pension plan sponsors,” Jon Waite, director of investment management advice and chief actuary of SEI’s Institutional Group, said in a release. “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. 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.”

According to the study, which was completed by 50 executives overseeing pensions ranging from $250 million to $10 billion in assets, the top 10 priorities are as follows:

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 Investing (LDI) 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

The study draws further attention to the uptick in popularity of liability-driven investment (LDI), a strategy often used by most corporate funds to limit volatility. In an earlier poll,  SEI revealed pension plans are increasingly adopting LDI strategies, with the UK and Netherlands in the lead. The firm’s fourth annual global LDI Global Quick poll showed that 100% of respondents from the Dutch market are incorporating an LDI approach. Following the Netherlands, the UK came in second place with 67% of respondents either currently using an LDI approach or expected to use the strategy in the next year. “Improved funded status” was ranked as the most popular benchmark for pension investment success. A total of 22% of respondents selected “minimize or control contributions,” surpassing “absolute return” as the second most popular primary benchmark.