A U.S. Treasury Department advisory committee is wonderingwhether the department could come up with new types of financialinstruments that could help pension managers do a better job ofhandling plan obligations.

Thoughts about the idea of the Treasury Department developingnew, pension-friendly products appear in the minutes of a recentmeeting of the Treasury Borrowing Advisory Committee of theSecurities Industry and Financial Markets Association (SIFMA),New York.

Committee members presented a talk about the funding problemsthat have been facing public and private defined benefit pensionplans.

The Pension Protection Act of 2006 has encouraged corporationsto shift plan assets into government bonds and high-rated corporatebonds, and away from stocks and stock funds, the committee memberssaid.

Public plans face different regulations. They tend to hold lessstock than corporate plans, but they have been increasing the shareof their assets invested in stock in an effort to increase theirrelatively low funding levels, or ratios of assets toliabilities.

Today, defined benefit plans “face several risks that aredifficult to hedge using pre-existing market instruments,” thecommittee members who made the presentation told other committeemembers.

The presenters suggested that the Treasury Department shouldconsider introducing new instruments – such as ultra-longtreasuries, wage inflation-linked treasuries, and healthinflation-linked treasuries – that could plan managers match planinvestments with plan liabilities.

But the presenters added that the Treasury Department must thinkcarefully about dealer capacity and other practical constraintsbefore going ahead and rolling out new types of products.