Mercer has tapped Matt McDaniel to lead the firm’s Financial Strategy Group (FSG) in the U.S. In addition, Jay Dinunzio has been recruited to the FSG team as a principal from Aon, a national retirement consulting firm. McDaniel leads an integrated team of professionals spanning investments, actuarial, and insurance solutions. FSG works with pension plans with regard to managing investment risks. Mercer has more than $200 billion in assets under management and more than $10 trillion in assets under advisement.
“I help plan sponsors to think holistically about the pension journey and how to manage risk along the way,” McDaniel told Institutional Allocator. “I help pension funds figure out the right investment strategy for liability-driven investments, and where it makes sense to transfer liabilities to other forms of insurance and lump sums.”
McDaniel has spent 17 years in the defined benefit consulting sector, 11 of which have been with Mercer. He has served in several roles representing leadership with Mercer’s risk and investment solutions, including recent roles as the firm’s U.S. defined-benefit risk leader and Philadelphia office business leader for retirement. McDaniel reports to Scott Jarboe, head of Mercer’s U.S. DB Segment. “Before, I was an individual consultant, now I have responsibility and accountability for leading the entire FSG team,” said McDaniel.
Over the past two years, the FSG has led more than 400 projects to help plan sponsors manage their risk, and has placed over $18 billion of liabilities with insurers. “We don’t do securities selection at Mercer—we advise our clients both on asset class and asset allocation, growth in assets, such as equities versus the liabilities of fixed income, and how to structure portfolios.”
I help plan sponsors to think holistically about the pension journey and how to manage risk along the way.
Now that the funded status of many public plans has improved since the recession, many of McDaniels’ clients are asking what they should do differently, now, to avoid falling back down to 75% funded during the next disruption. “We judge the risk level of clients’ plans based upon the growth level of their assets,” he said. “We encourage plan sponsors to form a ‘funded status perspective,’ or an awareness of the risk that the gap between assets and liabilities will grow—we encourage interest risk hedging to reduce overall volatility,” he said.
If a plan sponsor is very under-funded, they should consider investing in equities to close the gap, noted McDaniels. “A growing number of our clients are allocating 60, 70 or 80 percent to long-duration fixed income, especially if they desire to eventually terminate or freeze their plan—they want to live it out in a low-risk, high-funded status,” he added. “The majority of plan sponsors that have made the decision to freeze and move to defined contribution (DC) plans are trying to time it right so that they don’t have to put a lot of cash into it. Eighty percent of Fortune 500 Companies put new hires into a DC plan.”
If a plan sponsor is very under-funded, they should consider investing in equities to close the gap.
Dinunzio’s responsibilities include focusing on growth and execution within Mercer’s annuity buyout business. Dinunzio, who now reports to McDaniel, joins Mercer with nearly 20 years of experience navigating insurance-based pension risk transfer (PRT) transactions. He previously worked at Aon within the annuity consulting practice. Prior to that, he worked within the PRT business units for two different life insurance companies.
Dinunzio will handle the process once a plan sponsor has made the decision to transfer some liability to an insurer, he helps the client to pick the right insurer, said McDaniel. “The plan sponsor has to satisfy fiduciary obligations and pick an insurer that provides security to participants—it’s a very complex market, and the volume of insurance liabilities has increased over the past six years, and capital is flowing to those areas to pursue it,” he continued. “It takes creative ideas to secure participant benefits at an attractive price for both sponsor and advisor.”