
Adverse scenarios can affect travel, commerce and countless other variables worldwide. Corporations and the defined benefit plans they sponsor will likely feel the impact. Sponsors may experience the need for increased contributions, a decrease in funding status directly impacting the balance sheet or increased Pension Benefit Guaranty Corporation (PBGC) premiums. At times like this, it is increasingly important to explore and implement best practices to manage your organization’s defined benefit plan. PNC Institutional Asset Management® brings our clients ideas to help them navigate and weather adverse scenarios.
Financial Planning for Pension Plans
We recommend clients consider a dynamic approach to asset allocation for their plans to address the volatility of their plan’s financials. At a high level, a dynamic, liability-centric approach is designed to help create a smoother path to full funding by managing assets relative to liabilities.
At your next investment committee meeting, we encourage you to explore the questions below. Your PNC advisor would welcome the opportunity to participate in the discussion.
Asset and Liability Considerations
- What percentage of our portfolio is focused on outperforming liabilities relative to the percentage meant to provide downside protection? Is it an appropriate mix for our plan?
- How sensitive are the assets in our investment portfolio to a market or economic downturn?
- How sensitive are the liabilities of our defined benefit plan to changes in interest rates?
Connecting the Defined Benefit Plan to Your Financial Plan
- How sensitive are our financial metrics to the funded status changes of our plan?
- To what degree is our company financially capable (and willing) to make larger contributions in times of market downturns or underperformance?
- What is the long-term objective for our defined benefit plan, and what is our strategy to get there?
Asset Allocation Strategy Intended to Address Funded Status Drops
- A glidepath strategy has a higher allocation to equity-like assets when the plan is at a lower funded level and a higher allocation to fixed-income assets that behave like the liabilities as funding status improves. Does our plan have a glidepath strategy and, if so, is it well-executed? If not, what is our strategy for making modifications to the asset allocation as funding status changes?
- Is our investment strategy designed to address market volatility?
Financial Planning for Your Pension Plan
The challenges confronting defined benefit plan sponsors continue to grow. Adverse scenarios, such as a novel virus or general market volatility, are going to occur. PNC Institutional Asset Management can help plan sponsors to address these hurdles through a strategic approach intended to reduce the impact that such scenarios have on the financial health of your organization and its defined benefit plan.
We have invested in specialized resources, human capital and technology to help defined benefit plan sponsors solve their unique challenges. We help our clients to manage their assets, liabilities and the way both fit into their company’s financial picture:
Asset and Liability Management
- Outsourced chief investment officer (OCIO) solutions to manage a volatile investment landscape — as a 3(38) investment manager under The Employee Retirement Income Security Act of 1974
- Customized liability hedging intended to help manage interest rate risk in volatile market environments
- Custody and safekeeping of assets, included with investment management services, provides ease of administration and lower costs
- Access to PNC’s Pension Solutions Group, consisting of credentialed actuaries committed to helping plan sponsors meet their goals and objectives
Administration and More
- Guidance on governance and fiduciary structure, including the Investment Policy Statement (IPS)
- Quarterly asset liability reports, monthly funded status updates, and customizable packages available for reporting to help committees stay current on what matters
- Cash movements, benefit payments, tax withholding, and reporting provided through a dedicated fiduciary advisor
- Access to I-Hub, a secure, online tool that provides 24-7 access to account information and market values