Volatility top concern for pension plans

Funding volatility is the top concern for pension plan sponsors, according to SEI’s most recent Quick Poll. Of the poll participants identifying this as a top focus for 2012, 70% said controlling funded status volatility is at least a “high priority,” and 43% of those said it is an “extremely high priority.” Not far behind, plan sponsors identified the need to improve the funded status of their pension plans as the second most important priority this year.

“Market swings and low interest rates have really taken a toll on the funded status of pension plans over the past few years. Many plan sponsors now face the burden of making substantial contributions to their plans in order to meet funding requirements,” said Jon Waite, director of investment management advice and chief actuary with SEI’s institutional group. “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.”

The poll surveyed 50 executives overseeing U.S. corporate DB plans. Participants were asked to rank statements as a “marginal,” “high” or “extremely high” priority for their organizations. The Top 10 priorities for 2012 are as follows:

  1. Controlling funded status volatility
  2. Improving plan’s funded status
  3. Managing duration
  4. Implementing a liability-driven investing 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

Making a first appearance to the list this year is the need to implement an asset allocation process aimed at exploiting shorter-term market inefficiencies. Many organizations are viewing outsourcing as a way to effectively react to short-term markets in order to increase return and mitigate loss. This priority replaces last year’s priority to “make a plan design change.”

For a complete summary of the poll, email seiresearch@seic.com.