Increasing benefits costs and market volatility have led CFOs and pension plan sponsors to consider ways to de-risk their balance sheets. We understand the challenge because we work with more than 100 pension plans today, many of whom employ our unique de-risking strategy.
In a standard, dynamic glide path, you adjust exposures and/or risk profiles over time based primarily on changes in the funded status of the plan. Typically, these glide path blue prints shift assets out of the growth portfolio and into the liability hedge as funded status increases. However, in a low interest rate environment, this glide path approach might result in a significant drop in expected returns, causing you, the plan sponsor, to bear a higher cost of de-risking. We believe many glide paths are too regimented in their approach to risk reduction. This traditional approach means the glide path structure neglects the objective of maximizing return at each targeted level of risk. To achieve superior results, we advocate the use of multiple risk reduction levers, which requires a more holistic and flexible approach to dynamic asset allocation.