Pension plan sponsors should consider hedging labilities more evenly
While many believe discount rates could rise in the future, current dynamics suggest this rise will be due to a steeper yield curve, which may result in a decrease in funded status.
By Serge Agres|February 26, 2021 at 11:21 AM
Thank you for sharing!
Your article was successfully shared with the contacts you provided.
While COVID-19 dominated headlines, another tumultuous topic for corporate and other single-employer pension plans during 2020 was discount rates. Many plan sponsors are fully aware of how falling discount rates have resulted in larger liabilities and potentially lower funded statuses for their pension plans. What is driving the discussion now is the path of discount rates going forward. While many believe discount rates could rise in the future, current dynamics suggest this rise will be due to a steeper yield curve, which may actually result in a decrease in funded status for plan sponsors employing certain liability-hedging strategies.
While we believe robust liability hedging remains a bedrock of prudent pension risk management, given a heightened risk of yield curve steepening, plan sponsors should (re-)evaluate their asset/liability interest rate risk and reposition their liability-hedging portfolios as needed.
Complete your profile to continue reading and get FREE access to BenefitsPRO.com, part of your ALM digital membership.
Your access to unlimited BenefitsPRO.com content isn’t changing. Once you are an ALM digital member, you’ll receive:
Critical BenefitsPRO.com information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events.
Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com