Senior investment director Alex Pekker emphasizes that sponsors must pair their pension contribution strategy with an investment strategy, highlighting the key takeaways of a recent Cambridge Associates research paper, “Time for a Reset? Rethinking Contribution Policy“. Key takeaways from the article include:
- In spite of those contributions, and today’s higher aggregate funded status, Pekker cautions sponsors against several headwinds in the immediate and near-term future that could create what he calls “contribution regret,” wherein sponsors fail to hold onto funding gains after investing valuable assets to shore up their obligations.
- “If sponsors are not adjusting their investment strategy and devising a contribution strategy going forward, they may not be able to hold on to those gains,” said Pekker. “Contribution strategy should go hand-in-hand with investment strategy.”
- Cambridge Associates projects updated tables will increase minimum required contributions by an average of 4 percent to 5 percent annually. Cambridge advises more than 140 pension clients with $172 billion in total assets under advisement.
- “…We firmly believe each plan is as unique as snowflake,” said Pekker. Participant demographics, different plan structures—an open or a frozen plan, for instance–and whether plans pay retirees in lump sums are just a few factors for sponsors to weigh when determining and investment and contribution strategy moving forward.
- Determining a contribution strategy going forward should be considered as part and parcel to the overall business strategy, said Pekker. “Sponsors need to do a thorough analysis on which pension objectives fit their overall corporate needs.”
- “Even for plans that have become fully-funded, complete de-risking is not necessarily the right approach. It’s important to have some growth assets even when fully funded,” he added.
Read the full article at BenefitsPRO.com here.