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Portfolio > Asset Managers

Pensions: How Deep is Deep?

By staff Writer

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Managers of large U.S. defined benefit pension plans now seem to have a better sense of the gap between the resources they need to cover pension liabilities and the resource they actually have.

The MetLife unit of MetLife Inc., New York (NYSE:MET), has included data on pension manager attitudes in a new report on U.S. pension risk behavior.

Unit analysts have prepared the report using survey data from 149 of the 1,000 largest U.S. defined benefit pension plan sponsors.

In 2009, as investment values were plummeting, plan sponsors told MetLife that asset allocation was their most important problem; they ranked “underfunding of liabilities” third in importance.

In 2010, as the upheaval began to affect plan funding levels and assumptions, “liability measurement” jumped to first importance, from sixth, and underfunding rose to second place. Asset allocation fell to fourth place.

This year, liability measurement has fallen down to seventh in importance, and asset allocation has edged up to second place. Underfunding of liabilities now ranks first.

Some plan sponsors may have been coping with low rates on short-term government notes by using long-term bonds to back short-term liabilities, and others may have been trying to reduce risk by using short-term debt securities to fund long-term liabilities. Possibly because of consciousness of those trends, the risk of “asset and liability mismatch” has risen to second in the pension risk factor rankings, up from sixth in 2010 and up from fourth in 2009.

- Allison Bell

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