While big moves in financial markets over the past several years have done serious damage to pension funding, most sponsors of defined-benefit pension plans are unable to respond to major market moves in a timely manner, a recent survey shows.
A poll of 124 corporate, public and not-for-profit plan sponsors by HR consultancy Mercer found that just 21% of plan sponsors say they can execute an investment decision in less than a month. The majority (55%) say it takes them from one to three months to make a change to their asset allocation or shift investment managers, while 18% take from three to six months to make such changes and 6% can take as long as a year.
Kim Plummer, Mercer's U.S. leader for implemented consulting, says that the timing might reflect plan sponsors' wariness given the increased complexity they're facing. "The risk of making a mistake is seen as greater now, given increased regulations and the impact of decisions on plan financials as well as company financials," Plummer says. "What I've seen is a more cautious approach to making decisions in these committee settings."
Plan sponsors' timing might also reflect the staffing companies can devote to the pension plan, she says. "Sometimes when there isn't a dedicated staff, or you have two people working on this but they're also working on something else within treasury, they can't get back to making these decisions or can't get back to doing the analysis and report."
Plummer expects increased interest among plan sponsors in outsourcing the process of making investment decisions. About a quarter of the organizations surveyed say they considered outsourcing over the last year, with smaller organizations most likely to express interest.
Still, just 21% of the organizations blame the pace at which they move for causing them to miss an investment opportunity.
The survey also shows that almost three-quarters of the respondents plan to lower their plans' risk by increasing the allocation to fixed income. Forty-one percent say they will de-risk opportunistically, while 5% say they plan to do so immediately and 26% say they have established a schedule for shifting more assets into fixed-income. Twenty-three percent of the organizations say they will continue with their current asset allocation and emphasize return rather than de-risking.