Since nobody can plan for every contingency, including rising interest rates, the Principal Financial Group recommends that defined benefit plan sponsors use a fixed income strategy that works in any interest rate environment.
It tested out three fixed income strategies using rising interest rates, falling interest rates and rates that stay the same over a 10-year period. Each strategy was evaluated on its impact to funded status and total accounting cost.
What the company found is that a strategy that used a combination of core bonds, which are short- and intermediate-term bonds, and longer-duration bonds to match the plan's liability duration came out on top in a significant percentage of potential scenarios.
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