Pension Plans Focused on Improvement

Pension funds are “owning” five strategic aspects of management, a survey finds.

By Rebecca Moore | February 17, 2016
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Pension funds’ mission to deliver optimal outcomes over the long term continues to be tested by historically low interest rates, booming retiree populations and increased life expectancies, as well as unprecedented market volatility, State Street Corporation notes in a new research report.

The report, “Pensions with Purpose: Meeting the Retirement Challenge,” reveals pension plan sponsors are taking action in governance, efficiency, long-term investing, risk management and talent development to ensure successful outcomes for retirement plan participants over the next three years.

The survey of 400 pension professionals in 20 countries found board training and education will be the focus of 2016. Martin J. Sullivan, head of asset owner sector solutions for North America at State Street Corporation in Boston, tells PLANSPONSOR that particular finding jumped out to him this year. “What I’m seeing is an increased focus on governance and how to optimize plan assets and administration,” he says. “I’m also seeing a greater focus by boards themselves about how they can be more effective—an increased desire for education.”

Sullivan notes that last year, pension plans were focused on taking on more investment risk, but that has dropped back a little in this year’s study, with governance taking the main stage.

According to the research, pension funds believe that board expertise is not strong enough in critical areas and must be improved. Only 32% rate as “very strong” their board’s ability to think beyond short-term issues to address longer-term, strategic factors affecting the portfolio. Additionally, only 36% rate as “very strong” their board’s understanding of the risks facing the retirement fund, and 38% believe their board has a high level of general investment literacy.

As a result, 92% of funds are planning to upgrade their governance model over the next 12 months, and roughly half (45%) are planning to increase training and education opportunities for board members.

In the U.S., 41% expect to increase transparency to members about the governance and investment performance of their fund over one year, and 37% expect to adjust the balance of responsibilities between management and the board.

NEXT: New investment focus