Willis Towers Watson has suggested the top 10 investment actions it thinks defined benefit (DB) plan sponsors should take in 2017.
First, the firm suggests DB plan sponsors assess critical resources and fiduciary risk. Willis Towers Watson notes that all investment committees must prioritize their activities, but not all investment committees are created the same—plans, staff, budgets and expertise vary drastically. “Consider how your governance structure impacts your ability to focus on high-impact decisions, and identify areas where you may require additional support,” the firm says.
Willis Towers Watson suggests DB plan sponsors leverage an array of tools to evaluate financial strategies. Technology can enable DB plan sponsors to assess their governance; monitor and project the plan’s financial status to manage pension costs and risks; quantify the impact of different diversification, hedging and active management approaches; and explore new high-conviction investment manager opportunities.
According to Willis Towers Watson, DB plan sponsors should better align their strategy and time horizon. The firm says whether the sponsor intends to terminate the plan, offload it to an insurer or manage it for the foreseeable future, it is important to identify the goal and associated time horizon, risk and cash needed to achieve this goal.
DB plan sponsors should reduce nonstrategic activities such as short-term manager return monitoring. “It is easy to focus on manager performance because it is tangible; every quarter, or even every month, we can attempt to gauge whether hiring and firing decisions paid off by looking at past returns. But there are many other areas that deserve our attention as well, some of which we believe will have a much larger impact than short-term excess returns. Reallocating time spent on manager return. Focus your monitoring activities relative to strategic goals,” the firm says.
Plan sponsors should also define, evaluate and monitor key funding risks. The firm also recommends plan sponsors to gauge how current levels of risk and return, expected contributions and evolving pension liability regulations (such as mortality improvements, funding relief and rising PBGC premiums) may impact the plan’s long-term success, and link these findings to the plan’s broader risk management strategy to help plan sponsors act decisively at the most opportune times. NEXT: Other suggestions for 2017