Corporate pension funds embracing de-riskingNews added by Benefits Pro on January 31, 2014

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By Dan Berman

The trend of corporate pension funds employing strategies to mitigate risk in their plan shows no signs of slowing, with more than 60 percent saying they would take that path this year, according to a survey by Aon Hewitt.

The survey, which looked at 220 companies with 5.8 million employees, found that by the end of the year 62 percent of plans expected to match their investments to their liabilities, a process called de-risking.

Increasing stock prices and rising interest rates in 2013 have put pension plans on their best financial footing since the start of the Great Recession. Generally, corporate defined benefit plans ended last year with funded ratios of 95 percent.

That stability allows plan sponsors to adjust the mix of their investments and increase their exposure to fixed income investments and other instruments that hedge risk.

By the end of the year, Aon Hewitt found that 30 percent of plans said they would have a full de-risking strategy in place, compared to 22 percent now.

Employers continued to increase the preparations they took to ensure they understood the risks to their funds and how best to minimize those risks.

In the past year, the number of plan sponsors that conducted studies to understand their risks in various economic conditions doubled from 12 percent to 24 percent. Of the rest, 45 percent said they were likely or somewhat likely to do so this year.

More employers last year put in place monitoring systems to keep tabs on daily performance of investments. Besides the 12 percent with those in place, double the number of a year earlier, a quarter of those with such systems in place are somewhat or very likely to deploy them in 2014.

“Employers used to evaluate their plan’s funded status once each year when they were required to report on the plan’s performance,” said Rob Austin, Aon Hewitt’s director of retirement research. “Now they understand that it is critical to have a real-time view of how market and economic conditions are impacting the plan to enable them to adjust and execute their investment strategy at a moment’s notice.”

Another strategy plan sponsors are using to limit their liabilities is offering retirees or vested participants who are no longer with the employer a window to take a lump sum payment in lieu of retirement benefits. Twelve percent are doing this with another 43 percent of those who haven’t taken that step somewhat or very likely to do so this year.

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