The Forgotten 70%: Strategies for Pension Plans Accruing Benefits
- 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.
The historic milestone reached when the white smoke emerged from Brussels and London on 24 December 2020 represents the end of the beginning in the establishment of the new relationship between the UK and EU, rather than an end in itself. Nonetheless, with the lingering threat of a tumultuous no-deal exit now removed, the headwind that this represented to the performance of UK assets has now subsided.
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Investors have predominantly relied on developed markets sovereign bonds for defense in balanced portfolios, but low rates have diminished their diversification characteristics.
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