Is the flexibility worth the risk?

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The funded status of the average corporate pension plan has increased by approximately 10 to 15 percent in 2021, elevated by a roaring stock market and modestly higher interest rates. These improvements have prompted several plan sponsors to de-risk their asset allocations into Liability Driven Investing (LDI) strategies, further fueled by a strong consensus that equity markets are overvalued.

However, certain sponsors are headed in the opposite direction and are instead considering re-risking in the search for higher returns, in light of the contribution flexibility afforded by the American Rescue Plan Act (ARPA) and the Infrastructure Investment and Jobs Act. While every corporate pension plan sponsor has unique objectives and circumstances that should be taken into account when setting a long-term investment strategy, re-risking allocations and deferring contribution amounts may delay or jeopardize many plans from reaching their long-term goals, typically full termination of the plan.