For more than a decade, Robin Diamonte has led the United Technologies Corporation's $52 billion in global retirement assets. In this interview, she discusses why she reserves hope that UTC's lifetime income security scheme will spread to other institutions, the challenges of being a corporate CIO and reflects on her journey to the present.
Before joining UTC in 2004, Diamonte held several positions during her 12-year tenure at Verizon Investment Management Corp., from research analyst to managing director. Earlier in her career, she worked for AT&T (formerly Southern New England Telephone). She has a degree from the University of New Haven.
Diamonte was recently name as one of Trusted Insight's Top 30 Corporate Chief Investment Officers. She graciously spoke with Trusted Insight on Aug. 17, 2017. The following interview has been edited and condensed.
Before joining UTC in 2004, Diamonte held several positions during her 12-year tenure at Verizon Investment Management Corp., from research analyst to managing director. Earlier in her career, she worked for AT&T (formerly Southern New England Telephone). She has a degree from the University of New Haven.
Diamonte was recently name as one of Trusted Insight's Top 30 Corporate Chief Investment Officers. She graciously spoke with Trusted Insight on Aug. 17, 2017. The following interview has been edited and condensed.
Trusted Insight: You created the lifetime income security scheme at UTC, which has been met with much fanfare, but it hasn't been adopted by your peers. Do you reserve hope that other corporations will follow suit on their own or might take a catalyst for these investment offices to make the change?
Robin Diamonte: I really do reserve hope, because I know it is the right thing to do.
Probably not in the next 5 or 10 years, but in 20+ years, we will have a retirement crisis in America. It will become more and more difficult to save money for retirement. Young employees starting out in the workplace will not have a guaranteed pension when they retire. There will be many people that want to retire, but can't because they don’t have enough savings. Americans that have solid employment and work in companies that have strong 401(k) plans may have more opportunities to save, but even that person will have challenges.
Our participants now bear all the risks of saving for retirement. First they have funding risk, because they have to save enough money – their pension benefit doesn’t automatically accrue with service like the good old days. Next, they have mortality risk because they don’t know how long they will live and no longer have the benefit of mortality pooling like in a DB plan. Finally, they have investment risk – the risk that they will not invest their money appropriately for their age or the possibility that the market will have a significant correction right before retirement.
Even if a person is lucky enough to have a nice nest egg at retirement, without a guaranteed annuity stream, they need to know how much they can safely withdraw each year without either living below your means or even worse running out of money. That’s easier said than done when you don’t know how long you or your spouse will live or even what inflation will be during your retirement years.
I am surprised that more plan sponsors don’t offer some type of lifetime guaranteed option in their 401(k) plans. We thought it was a no brainer and didn't realize that after talking to our peers that there was going to be such a hesitation. The hesitation stems from legal and regulatory concerns. Plan sponsors don’t know what, if any, future safe harbors will be given for annuity options in savings plans. So many sponsors are waiting for some type of well-defined safe harbor that may never come. Because there have been so many frivolous lawsuits in this space, plans are afraid to offer any option that is not in the mainstream even if they think it may be in the best interest of some of their employees. Also, these lifetime income strategies can be harder to communicate to employees.
The reason DB plans were started in the beginning wasn't necessarily for paternal reasons. It was a way to attract and retain great employees. I am not sure that all employees really understand the value of their benefits and can distinguish between a DC plan with and without an annuity option. I do think that employers will someday do the math and realize that there are financial reasons for providing a good retirement savings vehicle and having a workforce feel confident and ready to retire. Healthcare costs are substantially higher for a person in their 60s vs. one in their 30s. You really don’t want people in your workforce that want to retire, but are not financially able. When companies eventually see these trends, they could make changes, but it may take a while.
Trusted Insight: At that point, is it too late?
Robin Diamonte: It’s too late if companies wait for 20 years to start to put in systems to help people retire more effectively. It may not be too late if they take action within the next few years. It's more of the younger employees, the 25 to 35 year-olds that will need these lifetime income strategies in the future.
We're talking, again, about the difference between long-term and short-term thinking. Naturally, if you're a CEO today, you're thinking about earnings, the macro environment, the culture and current talent. Worrying about significantly rising health care costs and an aging workforce that doesn’t want to voluntarily retire in 20 years is not a high priority.
Trusted Insight: What sets your role as a corporate chief investment officer apart from a similar role at a different institution type, be it a public pension fund or endowment or foundation?
Robin Diamonte: Corporate Plan CIOs tend to be more focused on our liabilities and hedging interest rate risk more than endowments or public pension plans, mainly because accounting and ERISA funding laws have changed so much over time. Portfolio volatility can significantly affect quarterly earnings.
The accounting methodology can drive more of a short-term investing mentality. Unfortunately, most of the industry as a whole is so short-term focused. It's a shame because we have long-term liabilities, and should be trying to take advantage of that by being long-term investors. In the endowment world, absolute returns and peer returns are more important. In the corporate world, returns are important, but we are more focused on interest rate risk, funded status ratio, debt that goes on the balance sheet and how much of the pension cost flows through to EPS.
If you work for a plan sponsor that is really focused on growing EPS quarter after quarter, then you're most likely concerned about funded status volatility. If you're a corporation that's short cash and you are less concerned about EPS growth, then you become more focused on mandatory funding and your funded ratio. Every decent CIO should know how interest rates, market returns and volatility of the DB plan affect the operations of the company and understand the pain thresholds of the CFO and CEO. We try to balance the company’s needs with the fiduciary responsibilities so that every action is a win-win for both the company and the employee.
Trusted Insight: You were a former nuclear marine electrician, a first generation college graduate, you lead one of the largest private pension funds in the U.S. and now you’re somewhat of a celebrity in the industry. Do you ever step back and take stock of how far you've come?
Robin Diamonte: Absolutely, I was the first generation in my family that graduated from college. I didn’t grow-up in an environment of white-collar professionals. I went to a technical public high school and worked through my attendance at local university. I remember a conversation that I had with my first mentor Britt Harris. Now, he's a real celebrity in this business. He was the CIO of Verizon, Texas Teachers and is now the CIO of UTIMCO. I was probably in my early 30s and was having breakfast with him one day at a conference.
He said to me, “Where do you see yourself later in your career?”
And I said, “I really want to be a director.”
He laughed at me and said, “You need to set your sights much higher than that.”
But that was my goal. I just wanted to be in management and reach a low level executive position. I never really saw myself heading an organization like he was doing at the time or definitely not being a senior executive in a great multi-national company like UTC.
Today, I am also involved in other activities at UTC like helping to develop high potential finance people and various initiatives to promote diversity and inclusion. I also have commitments outside of UTC. I chair the advisory committee for the PBGC, a government agency that operates insurance programs for defined benefit plans. I am on the board of CIEBA, a great organization of corporate CIOs. Most recently, I joined the board of Morningstar. All of these responsibilities are fascinating and you're right, I would have never imagined that I would have the responsibilities that I have now.
To learn more about corporate pension investing, click here to view the complete list of Top 30 Corporate Chief Investment Officers. You can view our full catalogue of interviews with institutional investors here.
Robin Diamonte: I really do reserve hope, because I know it is the right thing to do.
Probably not in the next 5 or 10 years, but in 20+ years, we will have a retirement crisis in America. It will become more and more difficult to save money for retirement. Young employees starting out in the workplace will not have a guaranteed pension when they retire. There will be many people that want to retire, but can't because they don’t have enough savings. Americans that have solid employment and work in companies that have strong 401(k) plans may have more opportunities to save, but even that person will have challenges.
Our participants now bear all the risks of saving for retirement. First they have funding risk, because they have to save enough money – their pension benefit doesn’t automatically accrue with service like the good old days. Next, they have mortality risk because they don’t know how long they will live and no longer have the benefit of mortality pooling like in a DB plan. Finally, they have investment risk – the risk that they will not invest their money appropriately for their age or the possibility that the market will have a significant correction right before retirement.
Even if a person is lucky enough to have a nice nest egg at retirement, without a guaranteed annuity stream, they need to know how much they can safely withdraw each year without either living below your means or even worse running out of money. That’s easier said than done when you don’t know how long you or your spouse will live or even what inflation will be during your retirement years.
I am surprised that more plan sponsors don’t offer some type of lifetime guaranteed option in their 401(k) plans. We thought it was a no brainer and didn't realize that after talking to our peers that there was going to be such a hesitation. The hesitation stems from legal and regulatory concerns. Plan sponsors don’t know what, if any, future safe harbors will be given for annuity options in savings plans. So many sponsors are waiting for some type of well-defined safe harbor that may never come. Because there have been so many frivolous lawsuits in this space, plans are afraid to offer any option that is not in the mainstream even if they think it may be in the best interest of some of their employees. Also, these lifetime income strategies can be harder to communicate to employees.
The reason DB plans were started in the beginning wasn't necessarily for paternal reasons. It was a way to attract and retain great employees. I am not sure that all employees really understand the value of their benefits and can distinguish between a DC plan with and without an annuity option. I do think that employers will someday do the math and realize that there are financial reasons for providing a good retirement savings vehicle and having a workforce feel confident and ready to retire. Healthcare costs are substantially higher for a person in their 60s vs. one in their 30s. You really don’t want people in your workforce that want to retire, but are not financially able. When companies eventually see these trends, they could make changes, but it may take a while.
Trusted Insight: At that point, is it too late?
Robin Diamonte: It’s too late if companies wait for 20 years to start to put in systems to help people retire more effectively. It may not be too late if they take action within the next few years. It's more of the younger employees, the 25 to 35 year-olds that will need these lifetime income strategies in the future.
We're talking, again, about the difference between long-term and short-term thinking. Naturally, if you're a CEO today, you're thinking about earnings, the macro environment, the culture and current talent. Worrying about significantly rising health care costs and an aging workforce that doesn’t want to voluntarily retire in 20 years is not a high priority.
Trusted Insight: Your undergraduate degree is in electrical engineering. How, if at all, does that crop up in your current role?
Robin Diamonte: Engineering is a discipline that helps you with problem solving and deciphering mathematical and quantitative puzzles.
I always think of my job as a puzzle to be solved. Corporate CIOs are trying to maximize our returns, minimize our risk, hedge our liabilities, understand the impact on accounting and at the same time think about what is good for the participant and the company. When you think about our markets over the last couple of decades, none of it follows typical textbook scenarios. The engineering education, although completely not related to what I currently do for a living, gave me the problem solving skills that I need to help with my current role.
Trusted Insight: What sets your role as a corporate chief investment officer apart from a similar role at a different institution type, be it a public pension fund or endowment or foundation?
Robin Diamonte: Corporate Plan CIOs tend to be more focused on our liabilities and hedging interest rate risk more than endowments or public pension plans, mainly because accounting and ERISA funding laws have changed so much over time. Portfolio volatility can significantly affect quarterly earnings.
The accounting methodology can drive more of a short-term investing mentality. Unfortunately, most of the industry as a whole is so short-term focused. It's a shame because we have long-term liabilities, and should be trying to take advantage of that by being long-term investors. In the endowment world, absolute returns and peer returns are more important. In the corporate world, returns are important, but we are more focused on interest rate risk, funded status ratio, debt that goes on the balance sheet and how much of the pension cost flows through to EPS.
If you work for a plan sponsor that is really focused on growing EPS quarter after quarter, then you're most likely concerned about funded status volatility. If you're a corporation that's short cash and you are less concerned about EPS growth, then you become more focused on mandatory funding and your funded ratio. Every decent CIO should know how interest rates, market returns and volatility of the DB plan affect the operations of the company and understand the pain thresholds of the CFO and CEO. We try to balance the company’s needs with the fiduciary responsibilities so that every action is a win-win for both the company and the employee.
Trusted Insight: You were a former nuclear marine electrician, a first generation college graduate, you lead one of the largest private pension funds in the U.S. and now you’re somewhat of a celebrity in the industry. Do you ever step back and take stock of how far you've come?
Robin Diamonte: Absolutely, I was the first generation in my family that graduated from college. I didn’t grow-up in an environment of white-collar professionals. I went to a technical public high school and worked through my attendance at local university. I remember a conversation that I had with my first mentor Britt Harris. Now, he's a real celebrity in this business. He was the CIO of Verizon, Texas Teachers and is now the CIO of UTIMCO. I was probably in my early 30s and was having breakfast with him one day at a conference.
He said to me, “Where do you see yourself later in your career?”
And I said, “I really want to be a director.”
He laughed at me and said, “You need to set your sights much higher than that.”
But that was my goal. I just wanted to be in management and reach a low level executive position. I never really saw myself heading an organization like he was doing at the time or definitely not being a senior executive in a great multi-national company like UTC.
Today, I am also involved in other activities at UTC like helping to develop high potential finance people and various initiatives to promote diversity and inclusion. I also have commitments outside of UTC. I chair the advisory committee for the PBGC, a government agency that operates insurance programs for defined benefit plans. I am on the board of CIEBA, a great organization of corporate CIOs. Most recently, I joined the board of Morningstar. All of these responsibilities are fascinating and you're right, I would have never imagined that I would have the responsibilities that I have now.
To learn more about corporate pension investing, click here to view the complete list of Top 30 Corporate Chief Investment Officers. You can view our full catalogue of interviews with institutional investors here.