There are many U.S. states that conduct on-going (and necessary) training for public fund trustees. I’ve been fortunate to speak at a number of these events since KCS was created. The folks at the Florida Public Pension Trustees Association (FPPTA) do an especially good job as they also provide a test/certification program following the completion of required coursework and attendance. Ron Ryan and I have just returned from speaking at FPPTA’s most recent event in Naples, FL.
Our presentation was titled, “How to Enhance the Funded Ratio”. We’ve given presentations touching on a similar subject matter at this event before, but never have we gotten the type of immediate and positive feedback that we received this time. For the last 6-7 years, both Ron and I have been trying to raise awareness regarding the need for defined benefit plans in both the private and public sectors to achieve a greater knowledge of their plan’s specific liabilities in order to manage their pension systems more effectively. OUR goal is to enhance the information that is available to these trustees in order to make more informed decisions.
As we’ve often articulated, managing a pension system without knowledge of the plan’s liabilities (the promise made to the participants) is similar to trying to play football without knowing how many points your opponent has scored. Obviously, it is not an easy task, if not impossible.
Our message to the folks attending this educational symposium was very simple and straightforward:
- The primary pension objective is not about beating the return on asset assumption (ROA), but that plan’s specific liability growth, which of course can be negative in a rising interest rate environment.
- EVERY DB pension system should be on a de-risking path toward full-funding no matter what the current funded status, as asset allocation will be driven by the funded ratio.
- Lastly, running a single asset allocation strategy geared to the ROA is yesterday’s approach, which hasn’t worked and likely won’t going forward. Plans need to implement our bifurcated approach to asset allocation that separates de-risking assets (used to meet retired-lives benefit payments) and growth assets that are benchmarked to future liabilities.
This approach is one of three potential implementations in the Butch Lewis Act legislation that we’ve highlighted on many occasions in this blog. Please let us know if you would like a copy of the FPPTA presentation that we delivered, and thank you once again to the folks at FPPTA for giving us the opportunity to share our insights with many of the Florida public pension trustees.