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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 Plan Annuity Purchase Update – Q4 2018

Pension Plan Annuity Purchase Update – Q4 2018

Market ActivitySource: LIMRA Secure Retirement InstituteTotal pension buyout sales once again increased in 2018. Q4 sales totaled nearly $10.5 billion which brings total 2018 sales to $26.4 billion, compared to $23 billion in 2017. While Q3 and Q4 sales...

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Retirement Update – April 2019

Retirement Update – April 2019

The month of March gave back some of the funded status gains since the beginning of the year. For most plans, gains since the beginning of the year should still be up by about 1% to 2%. Equities added to 2019’s strong returns, with global equities up over 10% year to date. The fall in discount rates and the corresponding increase in liabilities remind us of the impact that changes in rates have on a pension plan’s funding status.

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Roadblock Removed Allowing for Retiree Lump Sums

Roadblock Removed Allowing for Retiree Lump Sums

      The IRS has given plan sponsors the green light to move forward with offering lump sums to defined benefit plan retirees or other participants who are “in pay status”, receiving monthly checks. Or perhaps it’s more accurate to say that they’ve...

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Retirement Update – March 2019

Retirement Update – March 2019

Key Takeaways: Discount rates were relatively stable. February was a quieter month for bond markets following prior volatility in both US Treasury yields and corporate bond yields. Equities rose as markets continued to look beyond recent concerns about...

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2018 Pension Plan Report Card – C+ Year

2018 Pension Plan Report Card – C+ Year

      Last year was a so-so year at best for most plan sponsors. For most of the year things looked good but by the end of 2018 there were few things to celebrate. The good news was that interest rates were up year-over-year, but, in December, rates...

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Retirement Update – February 2019

Retirement Update – February 2019

2019 is off to a great start for the vast majority of pension plans. Equities saw increases across the board, with small cap equity leading the way with returns of over 11% for the month, and international equities bringing up the rear with returns of over 7%.

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Pension Plan Annuity Purchase Update – Q3 2018

Pension Plan Annuity Purchase Update – Q3 2018

Market Activity Source: LIMRA Secure Retirement Institute Through the first three quarters of 2018, pension buy-out sales continue on a record-breaking pace. Q3 sales totaled $6.3 billion which brings year to date sales to $15.9 billion, compared to $11.9...

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Replicating Private Equity

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.

read more
Retirement Update – January 2019

Retirement Update – January 2019

With discount rates and equities declining significantly during the month, December was a rough end to the calendar year for pension sponsors, most of which will have seen material declines in funded status during the month. Rates were still up for the calendar year, protecting most plans from large funded status declines, even with assets declining during the year.

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