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Mid-Sized Pension Plans: How to Get Back on Track in the New Year

Recent market research suggests that sponsors of mid-sized defined benefit pension plans (those with assets of between $50 and $500 million) remain most concerned with risk management, lower future return expectations and stock market volatility. What we find more concerning, however, is these same surveys also indicate that many DB plan sponsors have yet to formally develop a goal for their retirement programs, nor have they designed a road map for getting there.

Pension committees with these types of worries should first take a step back. Rather than focus on an uncontrollable market environment, designing and implementing a sound fiduciary process can help alleviate market-related concerns by putting you back in control, while helping realign your plan with its intended purpose.

According to data provided by Standard & Poor’s1, three out of four employers that sponsor a defined benefit plan also offer employees a supplemental defined contribution plan. Although many of these organizations have instituted a formalized DC plan fiduciary process, it is not uncommon to find that similar actions have not yet been taken for their DB plan counterparts. For example:

  • One commonly found, yet unintended, roadblock to achieving a plan’s goals is the absence of proper plan oversight. In many cases, an organization’s Chief Financial Officer has taken on sole responsibility of this area. He/she may meet independently with plan service providers, such as the plan actuary, investment advisor or asset managers, to review portfolio logistics and develop a schedule of next steps. But without a properly designed road map, each of these providers ends up working autonomously, deprived of the benefits of having an interrelated and cohesive strategy. Conversely, when a more collective and well-managed approach is implemented, each party becomes better equipped to provide more insightful guidance—guidance that sometimes proves invaluable.
  • Similarly, often the roles of the actuary, investment advisor and asset managers are misunderstood by a plan sponsor (in terms of accountability and fiduciary responsibilities). In a more ideal arrangement, these responsibilities would be directly established and acknowledged by all parties at the onset of an engagement, allowing for a better functioning relationship overall.
  • There are also cases whereby the fiduciary oversight process has been loosened or abandoned after a plan has been frozen and fated for termination. Keep in mind, though, that until a plan is officially liquidated, plan sponsors remain just as liable for its management. At no time should fiduciary oversight lapse.

For those sponsors who may have lost their way, or those just looking to improve upon current practices, below some sample governance and investment procedures designed to help get you back on track toward achieving your plan objectives.


  • Investment Policy Statement (IPS): Review the IPS and determine it to be up-to-date and appropriate for the plan risk profile and goals.
  • Committee Charter: Review the Charter and determine it to be up-to-date and appropriate for the plan sponsor’s organizational and committee structure.
  • Fiduciary Training: Educate committee members on their fiduciary responsibilities and their roles within the committee.
  • Investment Process Oversight: Ensure a prudent governance process for the management of plan assets.
    • Ensure the plan’s long-term funding and investment goals are met.
    • Ensure the plan’s investment model continues to meet the needs of the plan (investment capabilities, reporting, idea generation, timely update of material portfolio changes, etc.).
    • Implement and follow guidelines for fiduciary decision making with regard to asset allocation, investments, rebalancing and tactical decisions.
  • Documentation: Check to make sure all of the above is well documented and appropriately filed.


  • Long Term Goals and Liability Assessment
    • Define and review the objectives of the plan.
    • Understand and review the plan’s strategic asset allocation guidelines.
    • Understand and review funding position, contribution policy and balance sheet impact of the plan in consultation with the plan’s actuary.
    • Consider forward-looking projections of key plan variables, such as funded status, contributions and financial statement accounts.
    • Consider various risk transfer strategies.
    • Examine other constraints and changes in regulatory environment (unrecognized losses, funding relief, mortality updates, etc.).
  • Portfolio Oversight
    • Review the overall investment strategy for adherence to the plan’s IPS.
    • Ensure total portfolio results meet performance benchmarks.
    • Ensure return generating and liability hedging assets are properly structured and diversified.
    • Review the underlying investment strategies.
  • Asset/Liability Tracking and Monitoring: Ensure that the investment process is prudent and aligned with the plan’s long-term goals
    • Ensure ongoing and open communication between the plan sponsor, actuary, investment manager(s), investment advisor and other key stakeholders.
    • Review approaches and implementation of the de-risking glide path, if applicable.
    • Monitor changes in assets and liabilities and review both for consistency with goals and objectives of the plan.
  • Total Expenses
    • Identify, understand and monitor plan-related investment fees, including discretionary/investment advisor fees and underlying investment manager fees.
    • Ensure investment advisory and underlying investment fees are reasonable for the services rendered to the plan.

Whether you choose to follow one, some or all of these suggestions, having a well thought out and implemented fiduciary process will lead to better plan decisions, translating into better plan results.

1 Standard & Poor’s Money Market Directories; data downloaded November 2016