Poll: Controlling Funding Volatility Ranks Top Investment Priority for Pension Plan Sponsors

(February 8, 2012) — Corporate pension plan sponsors in the United States view controlling funded status volatility as the top priority for their organizations for the third consecutive year, according to a poll by SEI. 

“Market swings and low interest rates have really taken a toll on the funded status of pension plans over the past few years,” said Jon Waite, Director, Investment Management Advice and Chief Actuary, SEI’s Institutional Group, in a statement. “Many plan sponsors now face the burden of making substantial contributions to their plans in order to meet funding requirements. As markets continue to be volatile, plan sponsors continue to pursue sophisticated risk management strategies designed to better control volatility of the funded status of their pension plans.”

SEI added in a release on the study: “These wide swings are becoming increasingly less predictable and that volatility is cause for concern. As pension assets and liabilities have become a more prominent part of organizational financial statements, the need to accurately estimate financial risks presented by the pension continues to increase. Plan sponsors are seeking solutions that hedge against risk and volatility while protecting any improvements in funded status.”

SEI’s poll — conducted in January — surveyed 50 executives overseeing US corporate defined benefit plans, ranging from $25 million to $10 billion in assets, none of which were Institutional clients of SEI. The survey asked executives to identify priorities and rank each as a “marginal,” “high,” or “extremely high” priority. The survey assigned one, two, or three points, respectively, to the answers to measure the highest-ranking priorities.

As outlined by the poll, the top 10 priorities for 2012 are as follows:

1. Controlling funded status volatility

2. Improving plan’s funded status

3. Managing duration moving forward

4. Implementing a Liability-Driven Investing (LDI) approach using long-duration bonds

5. Providing senior management with long-term pension strategies

6. Stress-testing the portfolio to gauge its ability to withstand extreme macroeconomic environments

7. Conducting an asset-liability study

8. Implementing an asset allocation process aimed at exploiting shorter-term market inefficiencies to add return and/or mitigate risk

9. Changing funding policies and timelines

10. Defining fiduciary responsibilities for trustees and investment consultants