With all the bleeding the recession has caused in defined contribution plans, it can be easy to forget that defined benefit plans have been recession ravaged as well. DB sponsors are taking steps to stop the bleeding, according to the pros at Watson Wyatt, undergoing what one consultant called a "seismic shift from business as usual."
According to WW, 67% of companies have made or are planning policy changes this year and next to DB asset allocations, specifically: decreasing target equity allocations to 47.8%, a nearly 10 percentage-point drop since last year. WW also finds that almost three-quarters (73%) of companies have hired or fired managers since June 2008.
“This activity is a seismic shift from business as usual,” says Carl Hess, WW global director of investment consulting. “The uptick in activity could be a sign that many funds were caught off guard by the crisis and are now trying to mitigate their risk exposure.”
The survey also asked about the various measures employers are taking to improve their DB governance strategies. Forty-one percent will have implemented cost-cutting strategies by the end of this year, 12% will have established a risk advisory committee. Nearly two-thirds (62%) have taken a more stringent approach to managing fiduciary risk since June 2008, and 62% will have conducted stress tests on their ability to meet future funding requirements by the end of 2009.
“Given the current market, finding solutions to reducing exposure to risk and improving overall investment performance is critical,” said Hess. “While some employers may be limited by the steps they can take, most should be able to find ways to better manage their risks, optimize returns and improve their overall governance strategies.”
