Pensions Do More12.22.2011
Pensions fight through their difficult period, tarnishing naysayers’ opinions to bag their mission.
Pensions, the primary plan sponsor of defined benefit programs, have long struggled with their funded statuses in the U.S. Constrained by a vanilla portfolio of equity, fixed income, and perhaps “alternative” investments, pensions have been locked in their remit in a market environment that hasn’t rewarded such dogmatism.
“The ability to go anywhere, and do anything has been helpful in this environment,” said an unnamed buy-side source. “Adhering to straightforward principals like stock selection hasn’t panned out for investors.”
Unfortunately, pensions can’t always be “flexible,” due to their number of beneficiaries that need to get paid. Bearing in mind liquidity and a shorter investing time horizon is crucial.
As a result of the industry’s struggles, the number of companies willing to sponsor traditional pension plans is steadily shrinking. A spike in freezing or termination of plan has surged in the last year, according to industry reports.
Moreover, bankruptcies in the aviation, steel and related industries raised pressure in pension obligations on the Pension Benefit Guaranty Corporation (PBCG), so dramatically that fears of a taxpayer bailout has circulated through the marketplace.
So far, the PBGC has held steady as there are glimmers of hope that surviving pensions will do more for their beneficiaries. Recently, the Healthcare of Ontario Pension Plan (HOOPP), a fully funded Canadian pension, has announced they will allow members to be fully vested in their plans without going through a two-year waiting period. The decision is a response to the government’s request for “plans like ours to offer immediate vesting,” noted HOOPP Chief Executive John Crocker.
Perhaps the most common alternative to defined benefit plans is defined contribution, a direction in which many companies are moving. Yet, regulators have recently paid attention to fees placed on contributors.
“The unprecedented attention accorded to defined contribution plan fees – from legislators, regulators, litigators, plan sponsors and their advisors – has profoundly affected the level of fee oversight and, ultimately, the level of plan administrative fees,” and raising eyebrows on pension fee disclosure, according to Bill McClain, principal at institutional consultancy Mercer.
“Failure to meet these requirements could expose plan administrators to claims of breach of fiduciary duty.”
Liability-Driven Investing strategies in UK pensions were affected by the Gilt market turmoil.
Standardized global data is required to inform ESG allocation decisions.
In 2018 Federated Hermes acquired a 60% interest in HFML from BT Pension Scheme.
The German Government pension fund has chosen the Euronext V.E ESG World 75 Index.
The fund is managed by the Dutch asset manager NN Investment Partners.