By: Russ Kamp, Managing Director, Ryan ALM, Inc.

I recently saw an interesting LinkedIn.com post that touched on marketing one’s firm in the investment management industry. It claimed that most asset management organizations spend tons of money on marketing with little to show for the effort. I agree! 

The post had to do with how you present your firm’s capability to the world in a way that might just differentiate them from their peers. But, I don’t think that the marketing stinks because you can’t articulate why you’re different. I think there are few firms that stand out because of the lack of focus on the retirees.

The defined benefit (DB) pension industry has been around for a very long time, but despite the significant importance of providing a promised benefit to the plan participant each and every month, they are fading away. This is tragic. 

Why is this happening? I believe that we lost focus. The primary objective in managing a DB pension plan should be to secure the promised benefits at a reasonable cost and with prudent risk. Somewhere along the way, that objective was replaced by one focused solely on generating a return that – – if achieved (and that’s a BIG IF) – – would minimize the contributions needed to fund the original promise.

What that ignores is that asset class returns come with risk on an annual basis, and in some cases, significant variability. That uneven return pattern led to periods of significant drawdown on the plan’s assets, and the need to make up for those losses with greater contributions. Sponsoring entities didn’t like the impact that those volatile contributions had on their financial statements (this is especially true for corporate plans). I can’t say that I blame them.

There are a lot of people who play a part in securing a retirement for members: the plan sponsors/trustees, custodians, asset consultants, third-party administrators, actuaries, lawyers, accountants, and asset managers (sorry if I missed your specific role). Each one of these businesses plays an important role in the sacred promise to each and every plan participant that they can retire secure in their financial well-being. It is our collective responsibility to ensure that the funds necessary to meet the promised benefits are available. Furthermore, it is our responsibility to provide our services at both a reasonable cost and with prudent risk. 

Can we all say that we’ve done that?

At Ryan ALM, Inc. we know that we are but one of thousands of organizations engaged in the management of DB plans, but we know our purpose. We may be a fixed income shop focused on cash flow matching (CFM), but it is much more than that. We have as our mission the lofty goal of protecting and preserving DB plans for the masses, one DB plan at a time. We know that there is no substitute for a DB plan. That getting a monthly retirement check after a long working career is the least that an American worker should expect, and we collectively have not done well meeting that expectation. We know that pension plans riding the asset allocation rollercoaster aren’t making the necessary progress to keep their promises, while potentially jeopardizing ongoing support for the idea of a retirement program itself.

Let’s get back to pension basics. Let’s get off the asset allocation rollercoaster! Bifurcate your assets into liquidity and growth buckets. Fixed income should be the core holding as bonds are the only asset class that has a known terminal value and a contractual semi-annual interest payment. An allocation to a cash flow matching strategy will ensure that the benefit payments are the focus of the pension plan. Your plan will now have the necessary liquidity to meet each and every payment chronologically as far into the future as that allocation will go. GREAT NEWS: we haven’t had an interest rate environment as favorable as the current one in two decades. Now is the time to act.

Finally, let’s once again realize that the primary pension objective is the keeping of our promises to those who’ve dedicated their careers to us. Let us all work together to secure those promised benefits at both a reasonable cost and with prudent risk. The entire concept of dignified retirement for each American hangs in the balance. That is a huge responsibility that we all have a stake in.