Cenland Corporation : The CIO and the Closing of the DB Plan
Dan Woodbridge, 49, father of three, has just returned from a difficult meeting with Denise Liu, CFO of Cenland Corporation. Denise informed Dan that the company has decided to close the corporate defined benefit (DB) plan for all new employees. Dan was crestfallen. As CIO, Dan was responsible for Cenland’s in-house asset management organization, managing assets in several pension trusts totaling over $11b. Dan had built an industry-leading investment team, covering a wide range of asset classes including both public and private assets. Dan often congratulated himself that he was able to create a culture that attracted a talented and dedicated group of investment professionals even though some of them could probably be better rewarded financially elsewhere. Dan felt that this announcement risked all that he had built.Denise told Dan that performance was not the issue. Dan knew this, too. Cenland’s DB plans have performed well, better than an average US corporate DB plan (and much better than an employee probably could have done in public markets with a defined contribution (DC) plan). As a result, the company’s pension contributions have been less than expected and very stable, giving Denise and the CEO a lot of flexibility in using capital for future growth initiatives such as making some strategic acquisitions and spending heavily on Research and Development (R&D) for new products.Denise said that the Board no longer wanted the responsibility and risk of offering a DB plan. Industry peers had long ago started switching over to DC plans and consultants urged Cenland to fall in line. While Cenland’s HR department argued strongly that the DB plan was a good talent recruiting and retention tool, the Board felt that a DC plan with a generous company match, along with a discount company share purchase option, would be well-received by employees while reducing Cenland’s life-contingent liabilities.Back at his office, Dan stared at the beautiful early-October red fall leaves outside their corporate HQ campus in New England. Dan wondered what Denise’s news might mean for the plan’s long-term future: freeze; immunization; and/or a PRT (pension risk transfer).Denise wanted Dan to come back on the Monday after Thanksgiving with his recommendations for how to manage the Plan’s assets going forward. Dan knew this was going to ruin the Thanksgiving holidays for his team. Fortunately, the company has had a good year so he could probably make it up to them with better bonuses than last year. Dan emailed the team calling for a meeting the next morning – he wanted to sleep on it before breaking the news. Dan knew this could be a career moment for him. While the end-state of the DB plan could mean a somewhat diminished CIO role, he knew that if he managed the transition well, Denise would take notice which may help to reposition him for an even greater role within Cenland’s Treasury team or one of its operating companies.Dan spent the afternoon collecting his thoughts and the latest Plan data. He wanted to have all the information up-to-date and organized when the team gathered the next day. It will take thoughtful analysis and careful preparation from all the analysts on the investment team to formulate a forward-looking asset allocation strategy that best fits both Cenland corporation pension plan’s objective and overall corporate strategy. Dan pulled together the following information about the pension portfolio to help everyone come up with the best recommendations for the CFO and the Investment Committee