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  2. DEFINED CONTRIBUTION
November 10, 2014 12:00 AM

Qsuper's Vilgan worked to manage outcomes, not accumulation

Robert Steyer
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    Angie Gaylor
    Rosemary Vilgan applied DB-style thinking to the plan.

    The one-size-fits-all balanced fund that was the default investment option at QSuper, the A$48 billion (US$41.8 billion) superannuation fund for Australia's state of Queensland, concerned CEO Rosemary Vilgan.

    Ms. Vilgan, an Innovator Award winner, believed QSuper could do better, especially by tailoring its investment options to different groups.

    Now, the defined contribution plan for current and former state public employees offers QSuper Lifetime, which creates investment strategies for participants based on age, account balance and social security benefits via eight separate participant groups, or cohorts. The strategy for each cohort is built to meet the projected retirement needs of that specific group.

    “We are applying asset-liability management to defined contribution, rather than just asset management,” said Ms. Vilgan. That approach, she said, is part of applying defined benefit thinking to DC management.

    The goal was to encourage participants' planning for a “sustainable” stream of retirement income, rather than concentrating solely on accumulation, said Ms. Vilgan. She had prepared an internal paper in 2006 telling trustees that QSuper should focus more on managing outcomes.

    The catalyst for action was the economic crisis, in which some participants suffered a 30% drop in account balances. “After the crisis of 2008, members challenged us about telling them to think long term,” said Ms. Vilgan. Formal planning for the cohort strategy began in 2011.

    To build support for her idea among QSuper's board of trustees, she played for the trustees recordings of phone calls by participants inquiring about their retirement security.

    The trustees “heard the questions, but they also heard the fear in (participants') voices,” Ms. Vilgan said. “Many of the phone calls talked about outcomes. For example, one caller said: "I'm going to retire next year. Should I put all of my money in equities?'”

    Ms. Vilgan's efforts earned high marks from the award judges.

    “I'm not sure how to incorporate it in the U.S., but I would love to be a part of that team,” said one judge.

    “I find the concept of choosing investments for "cohorts' intriguing, and it was interesting to see how they categorized their participants,” said another judge. “This is a huge plan and I think what they did was very innovative.”

    Ms. Vilgan said the cohort approach — rolled out in increments between April 2013 and May 2014 — will be dynamic. As QSuper officials assess participants' responses, they could incorporate other factors in establishing investment strategies. “As we get more data, we will refine it,” she said.

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