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The Forgotten 70%: Strategies for Pension Plans Accruing Benefits
David Druley, CFA, Gregory Meila, CFA
- While up to 70% of all single-employer pension plans have participants who are still accruing benefits, risk management solutions discussed in the pension community typically focus on the needs of the other 30% of plans—those that are hard frozen.
- The mechanistic “glide path” approach tailored to hard-frozen plans is likely suboptimal for accruing plans, as it would lock in the need for permanently higher contributions.
- We recommend a more flexible, holistic risk budgeting approach that seeks to maximize expected return subject to each sponsor’s unique risk tolerance.
- Pursuing excess returns through active, alpha-driven strategies is particularly valuable for accruing plans, which face many years of future benefit accruals that must be met through either asset returns or contributions.
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