Innovation and stability might seem like two concepts that work at cross purposes. But for Kathleen Lutito, president and CIO of LUMEN/CenturyLink Investment Management, stability is necessary for innovation.

“There will always be change,” she told CIO. “I prefer to call these changes ‘wobbles.’ In my role, I’m trying to manage the team and the portfolio through the wobbles.”

The past 18 months have been pretty wobbly. Not just because of the pandemic—a significant issue in its own right—but also because LUMEN/CenturyLink has moved to purchase annuities for its retirees and spin off part of the company.

Those two decisions shrank the overall size of the pension by about 40% and required significant resources. Annuity purchases totaled $1.4 billion, approximately 15% of the pension’s liabilities. The spinoff included $2.5 billion, or approximately 25%, in pension liabilities. Both the annuity purchases and the spinoff had to be managed closely to limit disruption and ensure that all parties were being well served. The remaining portfolio adjusted its investment strategies to account for the changes.

“A lot of pension plans are where we are and are doing what we’re doing,” Lutito said. “As CIOs, we have to balance the short-term and the long-term. Doing that effectively will require innovative thinking to manage change. Our team has really tried to view this time as an opportunity to understand not only where we are but what the future might look like. If you’re coming from a place of opportunity, it is much easier to find solutions.”

In their search for solutions, Lutito and her team have implemented new technologies to help them manage their investment portfolios. LUMEN/CenturyLink has both a frozen defined benefit (DB) plan and an active defined contribution (DC) plan for employees. For both the DB and DC plans, she and her team use an investment factor risk analysis tool to help them think through portfolio construction. For the pension plan, a new liability risk management and reporting tool ensures that the overall portfolio is staying within acceptable risk ranges. Both of these tools have also helped to streamline reporting internally and to board members.

Lutito added that she thinks there will be a significant opportunity for further technological and investing innovations in the defined contribution space, especially when it comes to issues such as deaccumulation.

“We’re already seeing elements of defined benefit [plans] come over, to help people manage through their whole retirement,” she said. “To me, that says there is an opportunity for new solutions to come forward.”

In the future, Lutito expects the role of the CIO to expand in some ways in response to the need for continued innovation. “Markets and the industry are evolving much faster than they have in the past,” she said. “We’re getting more data than we ever have; technology is making everything move faster as well. When I look to the future, the role of the CIO is going to be more important than it ever has been because it will be up to the CIO to look at all of the innovations and all of the wobbles and make a decision.”

—Bailey McCann