Transition Management – 7 Questions Plan Sponsors Should Ask

The focus brought to defined benefit plan funding by the Pension Protection Act of 2006 and new accounting requirements by the Financial Accounting Standards Board is leading DB plan sponsors to consider changes to asset allocation.

conference audio available at  http://ww2.plansponsor.com/dbsummit06audio/notice.php  – free registration required 

A panel member at PLANSPONSOR’s 2006 DB Summit suggests seven questions plan sponsors should ask when selecting a transition manager.

Steven Glass, J.D., Head, Plexus Plan Sponsor Group Inc., Plexus Group, told DB Summit audience members transition management is an event where plan sponsors and trustees have the single-most direct fiduciary responsibility, following the asset allocation decision and investment manager hiring.

Glass said several weeks, even months, in advance of the portfolio change sponsors should send out very involved RFPs (requests for proposals) to transition managers. Then plan sponsors should ask:

  • What are the execution and performance risks imbedded in the portfolio to be sold?
  • What are the operational needs of the portfolio being sold?
  • What is the risk tolerance of the plan sponsor?
  • What is the time constraint of the transaction?
  • What do the answers to the first four questions tell the sponsor about the best approach for the transition and the type of transition manager that can carry out the best approach?
  • Which transition managers fit the profile of the firm that can carry out the best approach?
  • What is the definition of success for the plan sponsor to communicate to the transition manager (in terms of time, asset loss, cost, etc.).

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