Managing for a total outcome rather than focusing on the returns of individual strategies or asset classes is the key to solving the risk/reward dilemma faced by many underfunded pension funds, according to State Street Global Advisors.

In a recent paper, "Managing Pension Risk: Confront Your Risk/Reward Dilemma," the company offered insights for pension managers and investment committees and boards on how to manage pension risk.

State Street notes that investors' ability to recognize and manage risk has been tested in the face of market volatility and a shifting regulatory landscape. New accounting rules that have emphasized greater transparency, the Pension Protection Act of 2006, which put more emphasis on the asset/liability mismatch, and increased capital market risk have caused pension managers to struggle with remaining properly funded, match assets to liabilities, and manage contribution increases.