A new survey by Aon Hewitt, the global talent, retirement and health solutions business of Aon plc, finds companies, in an effort to decrease pension risk exposure and insulate their plans from fluctuating economic conditions, are increasingly rethinking their investment strategies by realigning their plan assets to match the plan’s liabilities.

According to Aon Hewitt’s survey of more than 220 U.S. companies with defined benefit plans representing 5.8 million workers, 62 percent of pension plan sponsors are somewhat or very likely to adjust their plan’s investments to better match the liabilities in the year ahead, compared to just one-in-six that do so today. Some companies plan to go one step further and adopt dynamic investment policies or glide paths that increase exposure to fixed income and risk-hedging options as their plan’s funded status improves. Twenty-two percent of employers currently have a glide path strategy in place. By the end of 2014, 30 percent of companies are expected to have embraced this approach.

“The strong market returns of 2013 improved the funded status of many employers’ pension plans,” said Rob Austin, director of Retirement Research at Aon Hewitt. “Implementing an investment policy that mirrors liability movements as underlying economic conditions change allows plan sponsors to lock in these gains. In addition to changing their investment policy, more companies are establishing holistic de-risking strategies to further guard their plan’s funded status and reduce liabilities.”

Aon Hewitt’s survey also found that companies are adopting a more thorough approach to monitoring and managing pension risk by focusing on three key areas:

1.  Understanding potential risk. Nearly a quarter (24 percent) of pension 
    plan sponsors have recently conducted an asset liability study to get a 
    better picture of their plan's performance under varying economic 
    conditions, double the number of companies that had done so in 2012. Of 
    the companies that had not yet conducted a study, 45 percent are somewhat 
    or very likely to do so in the next 12 months. 

2.  Monitoring funded status. One-in-eight employers have already established 
    a method to monitor daily funded status of its plan, twice the number of 
    employers than in 2012. One quarter of the plan sponsors that do not have 
    this monitoring in place are somewhat or very likely to do so in 2014. 

    "Employers used to only evaluate their plan's funded status once each year 
    when they were required to report on the plan's performance," explained 
    Austin. "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 

3.  Reducing liabilities. Pension plan sponsors continue to adopt strategies 
    to limit their liabilities. Lump-sum settlements through a "window" are 
    becoming increasingly popular. Twelve percent of plan sponsors recently 
    introduced or expanded the availability of lump-sum windows for retirees 
    or terminated vested participants, and 43 percent are somewhat or very 
    likely to complete a lump-sum window for inactive participants during 

    "As PBGC premiums have increased, the fixed costs of maintaining a 
    qualified pension plan have also increased, making it more desirable for 
    plan sponsors to settle plan liabilities through lump-sum payouts," added 
    Ari Jacobs, Global Retirement Solutions leader at Aon Hewitt. "These 
    settlements allow companies to reduce their pension obligations while at 
    the same time, give workers access to their retirement funds much earlier 
    than planned."

Source: The Wall Street Journal