Administration May 11, 2015

Many DB Plan Sponsors Still Considering Risk Transfer

More than half are looking to LDI strategies to de-risk their plans.
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A survey of North American defined benefit (DB) pension plan professionals conducted by Clear Path Analysis found 23% are still considering transferring plan liabilities to a third-party insurer in 2015.

Two percent said it is very likely they will do so in 2015, and 4% indicated such a transfer was already implemented or in progress.

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Thirty-seven percent of pension plan professionals in North America are considering utilizing or increasing the usage of liability-driven investing (LDI) strategies in 2015. Eighteen percent said they were very likely to do so, and 32% reported they have implemented an LDI strategy.

Clear Path says these trends are partly the result of increasing longevity of careers and lives of the general population of North America. The Society of Actuaries released updated mortality tables for pension plans late last year, which increased the assumed life expectancy of plan participants. As a result, DB plans will have increased pension liabilities and plan sponsors have had to review future benefit obligations.

Twenty-seven percent of survey respondents indicated the new mortality tables will have no effect on the plan liabilities, while 16% said the updated numbers will increase liabilities 1% to 3%; 33% anticipate a 3% to 5% increase; and 24% expect an increase of 5% or more.

In addition, asked what action their companies would take if DB plan liabilities increased due to the new mortality tables, 12% of respondents said they would transfer risk to a third-party, 22% would offer a lump-sum window to terminated or retired participants, 25% would implement an LDI strategy, 8% would close or freeze their plans, and 23% would make an additional voluntary contribution to their plans.

Clear Path also found that interest rates affect DB plan sponsors’ de-risking decisions. Twenty-seven percent of respondents said the movement of interest rates greatly impacts their decision to de-risk through LDI strategies or annuity purchase, and 49% indicated it slightly impacts their decision.

The survey, which was sponsored by Prudential Financial included responses from 51 high-profile CIOs, finance directors or pension plan managers in the U.S. and Canada who are responsible for managing assets between $500 million and $15 billion. 

A report on the Clear Path Analysis survey, titled “Pension Plan De-Risking, North America 2015,” is available here. A free registration is required.

Products May 11, 2015

Russell Fund Balances Income and Growth Potential

Russell Investments has launched a fund for investors seeking yield-oriented investment strategies.
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To help investors balance the need for generating income today, while also aiming to drive portfolio growth to generate sustainable future income, global asset manager Russell Investments has launched the Russell Multi-Strategy Income Fund.

The new fund, available via financial professionals, invests across a set of asset classes with both income and growth potential using a team of specialist money managers and strategies. Additionally, recognizing that market opportunities will likely change over the course of an investor’s time horizon, the fund has built-in flexibility to seek to adapt to risk and opportunities using dynamic portfolio management. Russell says the new fund is available for defined contribution (DC) retirement plans.

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“The demand for income solutions is as great as it has ever been, so this is driving many investors to prioritize short-term income over long-term growth by ‘reaching for yield.’ In this pursuit they are potentially jeopardizing their future income needs,” says Phill Rogerson, managing director, consulting and product, for Russell Investments’ U.S. adviser-sold business.

The fund invests in a broad range of globally diversified income-producing equity, real assets and fixed-income securities. A team of specialist third-party managers has been assembled based on their specific expertise in income-producing investments, such as listed infrastructure, real estate investment trusts (REITs), global equity, emerging market debt and global credit. Russell Investments also directly manages a portion of the fund’s assets.

Brian Meath, senior portfolio manager, and Rob Balkema, portfolio manager, have primary responsibility for the management of the fund. “We are looking beyond bonds and borders to deliver a truly global, multi-asset, income-oriented fund,” says Meath.

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