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Interest Rates – Where to From Here?

Understanding the dynamics that drive interest rates is critical to understanding the level of current rates, why they have changed in the past, and how they might change in the future. This understanding allows investors and pension sponsors to make informed decisions on how to deploy their bond portfolios and what to expect from their long-term, interest rate-sensitive liabilities.

A Powerful 3 Step Strategy: Increase Expected Return on Pension Assets at the Same (or Lower) Level of Funded Status Risk

It is possible for pension plan sponsors to increase expected returns on assets by 100 to 300 basis points (1-3%) per year for the same or lower funded status risk. The process and steps are spelled out below. Follow along and you’ll see how to increase expected returns, potentially cutting years off of the time required to reach full funding while also decreasing the pension expense reported in the financial statements.

Double Digit Equity Returns 2019 YTD — how do you protect your equity position for the rest of the year?

With both international and US equity markets up approximately 15% year-to-date reversing most of the 4th quarter 2018 correction, many plan sponsors are asking themselves “should we consider any changes to protect the equity gains that we have…

Replicating Private Equity

Private Equity is illiquid and challenging to benchmark. Many investors use “S&P 500 +3%” in order to compare performance in the absence of an observable, investable asset. This paper describes a methodology for creating a private equity proxy or replication strategy using derivatives.

Pension Investing – Next Generation of Glide Paths

Pension plan sponsors, especially those with frozen pension plans, have spent significant time deciding on the most appropriate balance between growth (return seeking/equities) and hedging (liability matching/long-term bonds) assets to meet their objectives. For most, the ideal goal is to fully fund the pension plan through a balance of investment performance, cash contributions and a rising interest rate environment while not subjecting themselves to higher than desired funded status risk.

Pension De-Risking – The Next Evolution in Reducing Funded Status Risk

There has been an evolution of pension plan de-risking over the years, giving us 3 different versions. Many plan sponsors have avoided moving more quickly to de-risk using strategies 1-3 because of the negative impact that each of these can have on a sponsor’s reported profits as well as expected cash contributions to close a deficit. We are now poised for de-risking version 4.0, in which plan sponsors will utilize modern risk management tools to significantly reduce funded status volatility while maintaining expected returns.

News

Pension Investing – Why Equity Derivatives Now?

Pension Investing – Why Equity Derivatives Now?

Equity returns of 15% or higher would usually be cause for celebration among corporate pension plan investors. However, despite these strong returns, many plan sponsors have seen a decline in their funded ratios during 2019. This is mainly attributable to falling interest rates, causing the value of liabilities to increase faster than assets for many. This is a continuation of a frustrating cycle that plan sponsors are all too familiar with: strong equity returns offset by rapidly rising liability values.

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Limit Lawsuit Risk by Staying Apprised of the Current 401(k) Legal Setting

Limit Lawsuit Risk by Staying Apprised of the Current 401(k) Legal Setting

On August 8th, former pension plan participants filed a lawsuit aimed at both the retirement committee of the plan sponsor, Community Health Systems, Inc., and the target date provider, Principal Global Investors, LLC, among other Principal entities. This lawsuit highlights the need for plan sponsors to review their passive index funds on a regular basis.

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Retirement Update – September 2019

Retirement Update – September 2019

August proved to be a difficult month for equity markets as continuing trade tensions and weakening economic data triggered a flight to safety. As a result, interest rates fell across the curve more so at the long end which caused a portion of the yield curve to invert. Emerging market equities were hurt the most in this off-risk environment. Given the above, funded status for plans that were not hedged likely decreased significantly for the month.

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PBGC Methods: Think Before You Switch

PBGC Methods: Think Before You Switch

PBGC premiums for 2019 are coming due soon, and there are two options to determine the interest rate used when calculating a plan’s premium based on underfunding. One option will reduce the premium this year, but at the likely cost of a higher premium next year.

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Retirement Update – September 2019

Retirement Update – August 2019

Following up on what was a very positive month of June for most plans, July proved to be fairly uneventful. Modest movement in discount rates with generally small equity gains should leave most plans in more or less the same funded position at the end of the month as they were in at the end of June. Year-to-date performance should look good for most plans.

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Data: Not an Infinite Problem; there is an Endgame

Data: Not an Infinite Problem; there is an Endgame

If the recent glut of superhero movies has taught us anything, it is that with great power comes great responsibility. Most pension plan fiduciaries tend to focus their responsibilities on plan assets. They exercise their power by monitoring asset performance, investment fees, and service provider expenses. These fiduciaries also have the responsibility to maintain the data and the liabilities associated with that data.

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De-risking – Is Less Equity Better?

De-risking – Is Less Equity Better?

Is holding less equity as a plan gets closer to its funding goal the right thing to do? We decided to dig into this question to see what the potential outcomes could be for plan sponsors and see how what we call structured equity could factor into the answer.

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Retirement Update – September 2019

Retirement Update – July 2019

June was another period of volatile market movements as rates continued to fall off the back of the Federal Reserve’s decision to leave base rates unchanged – for now. Meanwhile global equity markets had a strong month, with U.S. equity markets in particular reaching all-time highs. For most plans this would have led to an improvement to their funding level, contributing to positive year to date performance. Following a difficult May this month was certainly a welcome relief.

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Retirement Update – September 2019

Retirement Update – June 2019

2019 had been a fun ride for pension plan sponsors through the start of May, however the past few weeks have been less than fun. Year-to-date performance is still likely to be positive for most plans, but falling interest rates and negative equity returns during the month likely took a big chunk out of 2019’s gains. There’s no silver lining to be found here, as May was a bad month all around for pension plans.

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