The most-read Fiduciary Matters blog posts of 2016
Bob Collie and everyone on the Fiduciary Matters team would like to wish you all the best for the holiday season and for 2017.
The blog roamed far and wide in 2016, and that’s reflected in the range of topics touched on in the top ten most-read posts of the year below. If you’d like to print all of these with a single click, then just click here. We also have a digitized magazine format, handy for mobile devices while you're on the go.
1. The impact of 2008 is still being felt by pension plans
While many key metrics have long since regained pre-crisis levels, pension plan funded status remains stubbornly poor: the shadow of 2008 still falls on these plans.
2. The problem with Investment Committees
The decisions which have the most negative impact on investment results tend to be associated with capitulating on a good strategy after a stretch of bad performance. In fact, capitulation can evolve into a pattern of selling low and buying high as the investor seeks to recoup foregone returns.
3. The cash balance moment
We have written before on how the $20 billion club sets industry trends. To see what lies ahead for pension plans, one must only look back at what these massive plan sponsors have already done. Whether it is annuity purchases, lump sum programs, or dynamic asset allocation policies, this group tends to lead the way.
4. The investment policy statement tightrope
An investment policy statement could hinder your ability to oversee your investment program and, at the extreme, land you in court.
5. The pension herd has broken up
Many investor groups are highly sensitive to peer-relative results and as a result, there can be a herd mentality in their chosen investment strategies. But large corporate pension plans in the U.S. have moved away from that mentality over the past ten years.
6. The CIO (or OCIO) skillset – one person’s view
After years of running an investment program for a corporate pension plan, I was recently asked what it takes to be a good CIO. A tough question to be sure… and not one where there’s likely to be a single answer. But it occurred to me that one way to think about this might be to focus on a handful of key skills that, in my view, the job requires.
7. Multiple employer plans: What’s in it for participants? (Quite a lot.)
The MEP concept has received a lot of attention in recent months: for small employers looking for an easy and effective vehicle to offer workplace-based retirement saving, MEPs may well be a good fit. They could prove to be a good structure for participants, too.
8. Ford switch to mark-to-market pension accounting: are more to follow?
Ford today announced a switch to mark-to-market reporting for pension gains and losses. A handful of other major corporations already use this approach, and Ford’s move could be a sign that others will follow.
9. The full impact of mortality improvement hasn’t been felt yet by DB sponsors
In 2014 DB sponsors were jolted with the reality that their participants were living longer. This is good news, of course, but had serious implications for their pension plans. Longer lives means more annuity payments. Within a few months of their release, the new death rates took their toll on balance sheets, increasing PBO by as much as 8% and doubling down on the liability loss from falling discount rates that same year. Adoption of new mortality rates for accounting purposes has now been almost universal among DB sponsors.
10. Is there a point where interest rates are too low for LDI to make sense?
Having been out of the office—and paying scant attention to bond yields—for the past six weeks, I’ve returned to find the ten-year Treasury yield continuing its magic vanishing act… dropping below 1.4% at one point. This has reignited the ongoing debate about whether it really makes sense to continue to buy or to hold long bonds no matter how low yields get.
Is the social responsibility of business simply to increase its profits?
The title of this post echoes a famous Milton Friedman article written in 1970. Peter Drucker, however, argued that while profit is the first responsibility of a corporation, it is not the only one. Forty–plus years later, this exchange is still relevant in the arena of ESG investment.