DB Sponsors Ride out Turbulent Times

March 27, 2002 (PLANSPONSOR.com) - Despite two turbulent years, plan sponsors aren't showing much interest in ramping up risk management or performance benchmarking - and they were even less likely to use an outside consultant than they were a year ago, according to PLANSPONSOR's 2002 Defined Benefit survey.

Most pension funds measure their performance against their peer universe, some 79% in this year’s survey, compared with 77% a year ago.  Smaller plans are less likely to do so than larger ones, with only 69% of plans with less than $10 million in assets doing so, versus 80% of plans with more than $10 billion in assets.

The share of respondents who rely on the expertise of investment consultants dipped just slightly to roughly 78% versus 81% a year earlier.  However, most defined benefit plan sponsors -79% on average – regardless of size, are likely to benchmark themselves against a peer universe of pension funds, a similar statistic as compared to the 2001 survey.

By contrast the use of pension boards is directly proportionate to plan size. Only 69% of plans with less than $10 million in defined benefit assets have pension boards in place, rather than the 90% of plans with more than $500 million in assets.

Risky Business
Not surprisingly, plans with more than $10 billion in defined benefit assets are the most likely to have a formal risk management policy in place. That stands in sharp contrast to the smallest plans, where just a quarter has such a policy.  In fact, just 38% of all plans have one, roughly comparable to last year’s findings. Predictably, risk policies are more prevalent at the largest plans, where 60% have one, versus only 25% of the smallest plans.

On average, 58.5% of defined benefit plan sponsors require their managers to be AIMR compliant with their reporting. On the small plan side of the equation, however, a relatively large percentage are not aware of whether or not their managers are supplying reports that meet AIMR standards.

Small Stuff

As was the case in the 2001 survey, small plans are not at all likely to be allowing their managers to engage in soft dollar transactions, and many do not even know if their managers are doing so. By contrast, large plans are very likely to be allowing their managers to enter into soft dollar arrangements.

Survey results were based on the responses of 390 institutions, representing a total of approximately $385 billion in defined benefit assets.