Managing pension risk has become a critical business issue since pension funded status was made an integral part of a company’s balance sheet. Trustees and sponsors are already overburdened with compliance requirements and have limited time and resources to deal with a fast-moving market environment. Many are seeking a roadmap to reduce pension risk and are beginning to wrestle with the strategic, operational, and resourcing challenges that follow. This is especially true for pension schemes that have closed or frozen their plans and are targeting an eventual endgame that may include plan termination.
A dynamic de-risking strategy provides pension schemes with a framework to define their target endgame, along with a roadmap to get there.
The roadmap enables schemes to react to market conditions as they present themselves and continue on the path to their desired outcome. In particular, many trustees of frozen plans may wish to de-risk and terminate their plans as they reach full funding. To achieve this, trustees and sponsors can execute a “glide path” investment strategy to capitalise on risk reduction or risk transfer opportunities as they arise.
Although many schemes have developed such roadmaps in the past, the greatest plan in the world is of limited use if there is no supporting infrastructure to execute it. The best approach to execution requires the right mix of governance structure, operational capabilities, and integrated expertise, so that sponsors can not only identify opportunities, but also capitalise on them immediately.
Mercer Dynamic De-risking Solution (MDDS) is designed to help manage pension plans toward full funding while concurrently reducing risk in a timely, disciplined, and cost-effective manner.