Risk Management DB Sponsors’ Top Priority

In 2013, plan sponsors will once again focus on risk management strategies that better reduce funding volatility as the top priority for their organizations. Implementing a liability driven investing (LDI) strategy to better match duration came in second on respondents’ list of priorities.  

Asked which of the given risk-reduction strategies their organizations are considering for 2013, 63% selected liability driven investing, 47% chose lump-sum payments to term vested participant, 31% said closing or freezing accruals, 16% selected terminating the plan, and 14% chose annuitization through an insurance provider.  

The rest of the top 10 priorities selected by defined benefit (DB) plan sponsors are: 

• Provide senior management and board with long-term pension strategy; 
• Minimize pension operating costs; 
• Develop a strategy to aggressively improve plan funded status; 
• Implement a glidepath with automatic triggers that react to market conditions; 
• Stress-test the portfolio for its ability to withstand various market scenarios; 
• Review governance structure and decisionmaking process; 
• Terminate or begin the process to terminate the pension plan; and 
• Change the plan’s funding policy, contribution schedule and/or timeline. 

Thirty-five percent of respondents to the poll said “increased interest rates” would be their No. 1 pension wish for the upcoming year. While only 2% of polled pensions are currently in the termination stage, 25% of participants said a “fully terminated plan” would top their pension wish lists, followed by 16% who said a “fully funded plan.” Twelve percent chose “limited funding volatility,” and 10% selected “minimal cash contributions.”