Mercer outlines key investment issues that plan sponsors with defined benefit (DB) plans should focus on in 2016 to make optimal decisions on behalf of their plans and their constituents.
Meager investment returns and low interest rates made 2015 a challenging year for many DB plans, with funded status rising only modestly. Many plan sponsors took proactive steps to reduce their liability through lump sum offerings and some major annuity buyout transactions. Changing regulations and market volatility have meant that sponsors who have been proactive in managing their obligations and developing their strategy have been rewarded.
"Looking ahead, we believe the path to improvement will be through taking actions when opportunities present themselves, and not waiting for a slow melt in markets and rates."
Mercer advises DB plan sponsors to consider the following actions in 2016.
Are you ready to take advantage of an annuity buyout if the opportunity presents itself?
Would “borrowing to fund” help improve your economic value?
Have you developed a glide path strategy yet?
Could increasing your growth allocations improve your position in the long term?
Are you looking to isolate interest rate risk? Better serve your needs?
If you are considering private assets, have you planned for liquidity?
Are you ready to design the investment end state?