I know what you’re thinking. First Kenny Rogers and now the Rolling Stones? Why does this guy keep quoting 1980s songs and relating them to defined benefit (DB) plans?
Well, there were two things I did during my summer nights as a teenager growing up in the ’80s that left a lifelong impact on me – listening to music and dreaming about DB plans. Didn’t we all? More on this later….
Anyway, in my last post, I introduced the idea of dynamic asset allocation (DAA) as a DB plan risk management strategy. This strategy works particularly well with hard frozen DB plans.
What does Kenny Rogers have to do with pension plans? Well, nothing really. But as I sat down to write my LDI blog post, I thought about how many plan sponsors gamble with their pension plan investments.
As I mentioned in earlier posts, the behavior of the stock market has little to do with the way a defined benefit (DB) plan’s liabilities react. Yet many DB plan sponsors make big bets by allocating a large portion of their plan portfolios to stocks— without considering plan liabilities. (After all, “You’ve got to know when to hold ’em, know when to fold ’em.”) Read more
In my previous blog, I talked about risk as it relates to managing a defined benefit (DB) pension plan. The long and short of it is that risk is what happens when DB plan sponsors are busy making other assumptions.
Today, the combination of several factors—including market volatility, low interest rates and recent legislation—has created significant challenges for DB plan sponsors. Fortunately, the pension industry is helping plan sponsors manage these risks with a number of innovative approaches.
Sponsors of defined benefit (DB) plans face big challenges. These challenges usually happen when business (like life) doesn’t quite go as planned.
When danger threatened Metropolis, mild-mannered reporter Clark Kent dashed into the nearest phone booth to change into Superman. When the U.S. economy begins to stall, inflation-hating hawk and president of the Minneapolis Fed, Narayana Kocherlakota, runs up to Ironwood, Michigan to transform into a monetary-policy dove.