PLANSPONSOR - August/September 2018 - 50
DB FOCUS
New Interest in LDI Programs
Some sponsors once unwilling to hedge their plans are doing so now
S
ince the promulgation of the Pension
Protection Act of 2006 (PPA) and
Financial Accounting Standards
Board (FASB) Statement 158 in 2008, corporate
sponsors of defined benefit (DB)
pension plans have had a strong motivation
to improve the funding of their plans and
minimize their volatility. Liability-driven
investing (LDI) has been the strategy of
choice for many sponsors, which invest
heavily in fixed income to hedge the fluctuations
in their plans' net funded position,
mitigating charges to earnings and premiums
paid to the Pension Benefit Guaranty
Corporation (PBGC).
A sizeable minority of sponsors
chose to forego hedging their plan, being
unwilling to burden a large part of their
portfolio with ultra-low bond yields that
many thought were certain to rise, but have
yet to do so. However, the bond market's
reaction to recent Federal Reserve rate hikes
may be persuading those holdouts. " A good
number of sponsors are coming to realize
that increases in long bond yields may not
be inevitable, " says Justin Harvey, a strategist
in the multi-asset solutions group of
T. Rowe Price, in Baltimore.
LDI operates by a simple principle:
DB plan liabilities are valued with an index
of high-quality corporate bond yields, and
to invest portfolios in assets with similar
returns will insulate the plan from swings
in the economy and financial markets. If
yields fall, the value of liabilities rises, but
so does the value of the bonds.
Most sponsors see their core businesses
as risky enough and do not wish
to add volatility from the pension plan; at
consulting firm NEPC, about two-thirds
50 PLANSPONSOR.com August-September 2018
Art by Cleonique Hilsaca
of corporate plan clients have undertaken
meaningful LDI programs, says partner
Brad Smith, of the firm's Atlanta office.
" Interestingly enough, we still have a
solid third of our corporate client base that
has little or no LDI exposure, " Smith says.
That includes companies with defined
benefit plans that are still open to new
participants and thus growing, as well as
private companies not required to report
their earnings to the investing public.
" They are still investing for the long term, "
he adds, " but many sponsors have simply
been waiting for interest rates to go up. "
The accompanying chart shows that
U.S. corporate AA bond yields have spent
most of the last 10 years under 4%. Three
rate hikes by the Fed last year, plus two
this year, and more likely to come, will
probably boost short-term rates by about
http://www.plansponsordigital.com/plansponsor/august-september_2018/TrackLink.action?pageName=50&exitLink=http%3A%2F%2FPLANSPONSOR.com
PLANSPONSOR - August/September 2018
Table of Contents for the Digital Edition of PLANSPONSOR - August/September 2018
Getting Them Back on Track
2018 PLANSPONSOR National Conference
2018 Participant Survey
2018 Managed Account Buyer's Guide
Fund Change
New Interest in LDI Programs
Another Way to Save
PLANSPONSOR - August/September 2018 - C1
PLANSPONSOR - August/September 2018 - FC1
PLANSPONSOR - August/September 2018 - FC2
PLANSPONSOR - August/September 2018 - C2
PLANSPONSOR - August/September 2018 - 1
PLANSPONSOR - August/September 2018 - 2
PLANSPONSOR - August/September 2018 - 3
PLANSPONSOR - August/September 2018 - 4
PLANSPONSOR - August/September 2018 - 5
PLANSPONSOR - August/September 2018 - 6
PLANSPONSOR - August/September 2018 - 7
PLANSPONSOR - August/September 2018 - 8
PLANSPONSOR - August/September 2018 - 9
PLANSPONSOR - August/September 2018 - 10
PLANSPONSOR - August/September 2018 - 11
PLANSPONSOR - August/September 2018 - 12
PLANSPONSOR - August/September 2018 - 13
PLANSPONSOR - August/September 2018 - 14
PLANSPONSOR - August/September 2018 - 15
PLANSPONSOR - August/September 2018 - 16
PLANSPONSOR - August/September 2018 - 17
PLANSPONSOR - August/September 2018 - 18
PLANSPONSOR - August/September 2018 - 19
PLANSPONSOR - August/September 2018 - 20
PLANSPONSOR - August/September 2018 - 21
PLANSPONSOR - August/September 2018 - Getting Them Back on Track
PLANSPONSOR - August/September 2018 - 23
PLANSPONSOR - August/September 2018 - 24
PLANSPONSOR - August/September 2018 - 25
PLANSPONSOR - August/September 2018 - 26
PLANSPONSOR - August/September 2018 - 27
PLANSPONSOR - August/September 2018 - 2018 PLANSPONSOR National Conference
PLANSPONSOR - August/September 2018 - 29
PLANSPONSOR - August/September 2018 - 30
PLANSPONSOR - August/September 2018 - 31
PLANSPONSOR - August/September 2018 - 32
PLANSPONSOR - August/September 2018 - 33
PLANSPONSOR - August/September 2018 - 34
PLANSPONSOR - August/September 2018 - 35
PLANSPONSOR - August/September 2018 - 36
PLANSPONSOR - August/September 2018 - 37
PLANSPONSOR - August/September 2018 - 2018 Participant Survey
PLANSPONSOR - August/September 2018 - 39
PLANSPONSOR - August/September 2018 - 40
PLANSPONSOR - August/September 2018 - 41
PLANSPONSOR - August/September 2018 - 2018 Managed Account Buyer's Guide
PLANSPONSOR - August/September 2018 - 43
PLANSPONSOR - August/September 2018 - 44
PLANSPONSOR - August/September 2018 - 45
PLANSPONSOR - August/September 2018 - 46
PLANSPONSOR - August/September 2018 - 47
PLANSPONSOR - August/September 2018 - Fund Change
PLANSPONSOR - August/September 2018 - 49
PLANSPONSOR - August/September 2018 - New Interest in LDI Programs
PLANSPONSOR - August/September 2018 - 51
PLANSPONSOR - August/September 2018 - Another Way to Save
PLANSPONSOR - August/September 2018 - 53
PLANSPONSOR - August/September 2018 - 54
PLANSPONSOR - August/September 2018 - 55
PLANSPONSOR - August/September 2018 - 56
PLANSPONSOR - August/September 2018 - C3
PLANSPONSOR - August/September 2018 - C4
https://www.plansponsordigital.com/plansponsor/march_april_2024
https://www.plansponsordigital.com/plansponsor/january_february_2024
https://www.plansponsordigital.com/plansponsor/november_december_2023
https://www.plansponsordigital.com/plansponsor/september_october_2023
https://www.plansponsordigital.com/plansponsor/july_august_2023
https://www.plansponsordigital.com/plansponsor/may_june_2023
https://www.plansponsordigital.com/plansponsor/march_april_2023
https://www.plansponsordigital.com/plansponsor/december_2022_february_2023
https://www.plansponsordigital.com/plansponsor/october_november_2022
https://www.plansponsordigital.com/plansponsor/august_september_2022
https://www.plansponsordigital.com/plansponsor/june_july_2022
https://www.plansponsordigital.com/plansponsor/excellenceawards_2022
https://www.plansponsordigital.com/plansponsor/april_may_2022
https://www.plansponsordigital.com/plansponsor/february_march_2022
https://www.plansponsordigital.com/plansponsor/december_2021_january_2022
https://www.plansponsordigital.com/plansponsor/october_november_2021
https://www.plansponsordigital.com/plansponsor/august_september_2021
https://www.plansponsordigital.com/plansponsor/june_july_2021
https://www.plansponsordigital.com/plansponsor/april-may_2021
https://www.plansponsordigital.com/plansponsor/february-march_2021
https://www.plansponsordigital.com/plansponsor/december-january_2021
https://www.plansponsordigital.com/plansponsor/october-november_2020
https://www.plansponsordigital.com/plansponsor/august-september_2020
https://www.plansponsordigital.com/plansponsor/june-july_2020
https://www.plansponsordigital.com/plansponsor/april-may_2020
https://www.plansponsordigital.com/plansponsor/february-march_2020
https://www.plansponsordigital.com/plansponsor/december-january_2020
https://www.plansponsordigital.com/plansponsor/october-november_2019
https://www.plansponsordigital.com/plansponsor/august-september_2019
https://www.plansponsordigital.com/plansponsor/june-july_2019
https://www.plansponsordigital.com/plansponsor/april-may_2019
https://www.plansponsordigital.com/plansponsor/february-march_2019
https://www.plansponsordigital.com/plansponsor/december_2018-january_2019
https://www.plansponsordigital.com/plansponsor/october-november_2018
https://www.plansponsordigital.com/plansponsor/august-september_2018
https://www.plansponsordigital.com/plansponsor/june-july_2018
https://www.plansponsordigital.com/plansponsor/april-may_2018
https://www.plansponsordigital.com/plansponsor/february-march_2018
https://www.plansponsordigital.com/plansponsor/december_2017-january_2018
https://www.plansponsordigital.com/plansponsor/november_december_2017
https://www.plansponsordigital.com/plansponsor/october_2017
https://www.plansponsordigital.com/plansponsor/september_2017
https://www.nxtbookmedia.com