Plan sponsors using strong solvency positions to tweak investment, funding strategies

Despite strong funding positions, plan sponsors are taking a proactive approach when it comes to managing pension investments and risk, according to Aon Hewitt.

Its latest pension risk survey, which covers 124 pension plans across the country, found plan sponsors are adapting their funding and investment strategies in response to new pension regulations.

“Plan sponsors aren’t resting on their strong plan performance but are instead looking for ways to better prepare for more volatile markets going forward,” said Ian Struthers, partner and investment consulting practice director at Aon Hewitt, in a news release. “As investment choices and risks have become more complex, plan sponsors are more deeply focused on long-term strategy, efficient use of tools and resources and, above all, sound risk management.”

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The survey revealed plan sponsors are tweaking their investment strategies in anticipation of a market that continues to produce low bond yields and high valuations. Among respondents, 30 per cent have reduced their bond allocations, and most are investing or considering investments in alternative asset classes such as real estate (82 per cent) and infrastructure (79 per cent).

At the same time, while many plan sponsors are turning to de-risking options, the survey found more private sector plans are taking that step than those in the public sector. And while 92 per cent of plans have a long-term strategy to reach their objectives, a very high number (90 per cent) don’t measure their progress against them, the survey noted.

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“The opportunity for pension plans is to take a 3D approach, focusing on diversification, de-risking and dynamism in response to change,” said William da Silva, senior partner and retirement practice director at Aon Hewitt. “The need for responsive strategies is especially clear in jurisdictions with new pension regulations, where the survey shows sponsors are re-strategizing their funding and investment approaches.”