KNOWLEDGE CENTER

Knowledge Center Archive

Feb
8
2012

Quick Poll: The Top 10 Priorities for U.S. Pension Plan Sponsors in 2012

When asked to identify top investment priorities and challenges, controlling funded-status volatility and improving a plan's funded status, like years past, remain at the top for plan sponsors in 2012. A few interesting priorities to note are:

  • Implementing an asset allocation process aimed at exploiting shorter-term market inefficiencies to add return and/or mitigate risk
  • Defining fiduciary responsibilities for trustees and investment consultants

Controlling funded-status volatility

The funded status of corporate defined benefit plans has been impacted by global market swings and low interest rates over the past few years. Because of this, plan sponsors seek solutions that hedge against risk and volatility.

Improving funded-status

Recently, the average funded-status ratio of U.S. corporate pension plans dropped, hovering just above the historic low set in May 2003. This decline was primarily due to higher liabilities caused by a decrease in corporate bond interest rates. Since interest rates are expected to remain low, many plan sponsors will be forced to contribute to their pension plans this year.

Exploiting shorter-term market inefficiencies

Plan sponsors show an increased desire to react quickly and nimbly to market swings to take advantage of short-term trading techniques. An investment process in place, such as outsourcing a portion of the portfolio to a fiduciary manager, can increase the ability to react to short-term markets in order to increase return and potentially mitigate loss.

Defining Fiduciary Responsibilities

Plan sponsors need to identify how fiduciary responsibilities are being met and by whom. Because failure to meet fiduciary standards can result in legal repercussions, defining these roles becomes a priority.

Top Ten List of 2012 Pension Plan Sponsor Priorities (PDF)