woman holding light Withcutting-edge risk management platforms, a lot of the legwork isalready taken care of, enabling reaction times to be transformedfrom weeks or months, to a matter of days. (Photo:Shutterstock)

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Managing risk is a growing priority for U.S. defined benefit(DB) pension plans. Market shifts, tax deductions and changes inaccounting procedures — combined with rising Pension BenefitGuaranty Corporation (PBGC) premiums — are driving DB plans toassess how soon they want to terminate and the best way to do it.Having effective risk management solutions can help plans respondefficiently and take advantage of such developments.

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Historically, pension plan funded status was only calculatedonce or twice a year. Indeed, prior to technology developments, ifa market movement occurred, actuaries would be required to go backto a liability valuation system, roll forward the most recentyear-end figures to the most recent date, and gather updatedinvestment information from their investment advisor partners. Bythis time, a couple of weeks could have passed by and a chance tolock in funding improvements may have been missed, as the marketmay have corrected.

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Now, real-time information on funding positions is allowingplans to react far quicker to market conditions or changes infunded status. With cutting-edge risk management platforms, a lotof the legwork is already taken care of, enabling reaction times tobe transformed from weeks or months, to a matter of days.

Optimizing when and how to terminate

While many DB plans may know where they are and where they wantto go, understanding when and how to maximize opportunities is aconsiderably more complex dilemma. With many DB plans lookingtowards termination, technology – combined with advisory expertise– not only helps them get there, but also show them how to getthere in the most efficient manner.

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For example, bringing the funded status together, as opposed tohaving liabilities in one spot and assets in another, isinvaluable, allowing a comprehensive understanding of the overallposition of a plan or portfolio.

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Indeed, pension plans increasingly require a holistic,cross-balance sheet understanding of risk in order to structureportfolios and implement de-risking solutions.

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This has become all the more important in the current pensionsenvironment; assets and liabilities are changing in more complexways and being impacted by more factors, making effective riskmanagement far more challenging – and connecting assets andliabilities crucial.

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This comprehensive view can also facilitate improvedcoordination and collaboration between stakeholders, resulting in astep-change for advisory services. Technology platforms can act asa hub through which all parties can see consistent and relevantinformation across both the asset and liability side of pensionplan risk management.

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This allows plan advisors to be fully informed and aligned intheir dialogue with clients, facilitates brainstorming, andreal-time, enriched conversations about investment strategy andmodeling various scenarios – allowing a more holistic offering tobe presented, and the end-to-end process to happen substantiallyfaster.

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For a DB administrator providing actuarial services, forexample, collaborating effectively with a plan sponsor's investmentadvisor is particularly valuable to implementing dynamic assetallocations. For instance, a plan actuary may pre-load relevantliability information, while looking to the investment advisor toprovide what they consider to be the target asset allocation.

Strengthening client engagement

This kind of industry-changing technology can also help drivecloser collaboration among actuaries, plan sponsors, and theiradvisors. Many platforms exhibit user-friendly capabilities,allowing live, on-screen demonstrations to be performed in clientmeetings to more clearly highlight how different investmentstrategies can impact their portfolio, structuring a number ofglide paths for review and analysis.

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New technology platforms make this information clearer,streamlined, more concise, and more sophisticated when presentingto the end client. This portability creates the opportunity toeasily illustrate portfolio positions and fuels greater engagementwith clients.

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Providing clients with a better understanding of the interactionbetween assets and liabilities – as well as demonstrating theshort- and longer-term impacts of de-risking, or a market event onthe risk profile – can, in turn, help to ensure the most effectivesolutions are implemented.

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This is a key step in helping plan sponsors to reduce fundedstatus volatility, assess risks associated with large unexpectedcontributions, and ultimately strive toward fully fundedstatus.

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Certainly, it is important to provide a holistic service toclients – a combination of effective technology and aforward-thinking, client-focused experience.

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Furthermore, the industry is increasingly recognizing thesubstantial value of enriching discussions and relationships withclients and their investment partners – and the importance oftechnology in driving that forward.

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With the pensions landscape becoming more challenging tonavigate, it is more important than ever that advisors and assetmanagers can help clients identify what their needs are, and how tomeet them, effectively and efficiently.

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Equipped with the right technology tools, advisors and assetmanagers can deliver enhanced capabilities that can help ensuretheir clients are positioned to harness opportunities, and optimizetheir investment strategies.

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Bob McBride is Vice President ofRetirement Solutions at Transamerica.

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Shawn Carlson is ConsultingActuary at Transamerica.

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