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Adopting a goals-based approach to managing pension plans

How you receive information around changes to your plan’s funded status can impact your strategic decisions. Last year is a great example of how the funded status of pension plans can fluctuate significantly throughout one calendar year. In late March of 2020, funded status of Canadian defined benefit pension plans had fallen to almost 80%. Plans rebounded strongly for the rest of the year and saw their aggregate funded level improve to 91.2% by year-end.1 That is a significant swing in funded status over just a nine-month period.

As complexities around defined benefit plan management continue to grow, sponsors are changing the way they manage their plans to be more goals centric. Those goals do not relate to the pension in a vacuum but also focus on business objectives and company financials as well. Managing towards those goals becomes very difficult if decisions need to be made using pension funded data that is not current. Having timely data allows for better strategic decisions around asset allocation, contribution expense and plan design.

Timely data — better strategic decisions?

Many plan sponsors struggling with the challenge of not having timely information have simply not adopted a plan management structure that enables it. Some plan sponsors are entirely dependent on formal actuarial valuations being done annually or in some instances once every three years. Given the example above, that is not timely, considering how drastically funded status can change in short periods of time.

Plan sponsors adopting a goals based approach to managing their pension need to design the governance structure to focus on monitoring progress towards these goals on a regular basis. This requires more streamlined information and data. It is unrealistic to pay for an actuarial valuation on a quarterly basis but there are technologies available that enable timely reporting around how your portfolio is meeting your goals. At a minimum, your current infrastructure should provide:

  • Customized reporting for all Canadian regulatory environments, plan types and liability measurements
  • Separate reports for each of Going-Concern, Solvency and IAS accounting liability funding levels
  • Across time changes in assets, liabilities and liability discount rates
  • Detailed reconciliation and decomposition of quarterly and year-over-year liabilities, assets and funded status
  • A detailed report of the liability hedge ratio and key rate durations

If your current approach does not provide this level of information, you should consider evaluating how your plan management process can be improved to do so. Kendra Kaake recently bylined an article for IFEBP (International Foundation of Employee Benefit Plans) Plans & Trust Magazine that dives into greater detail if you want to read more.

Read the article.

Upcoming case study on this topic

Learn how one plan sponsor adopted an investment model that models towards goals.

SEI Investments Canada Company, a wholly owned subsidiary of SEI Investments Company, is the investment fund manager and portfolio manager of the SEI Funds in Canada. There are risks involved with investing, including loss of principal.

The information contained The information contained herein is for general and educational information purposes only and is not intended to constitute legal, tax, accounting, securities, research or investment advice regarding the Funds or any security in particular, nor an opinion regarding the appropriateness of any investment. This information should not be construed as a recommendation to purchase or sell a security, derivative or futures contract. You should not act or rely on the information contained herein without obtaining specific legal, tax, accounting and investment advice from an investment professional. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There is no assurance as of the date of this material that the securities mentioned remain in or out of the SEI Funds. 

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Kendra Kaake, CFA, ASA, ACIA, FRM

Director of Investment Strategy