Underfunded Pension Plans: Implications Going Forward Using Asset/Liability Modeling To Match Liabilities To Assets
- Topics:
- Commercial Lending
- Tags:
- Asset,
- Asset Management,
- Benefits,
- Business Operations,
- Human Resources,
- Institute For Fiduciary Education,
- Operational Planning,
- Pension Plan
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Overview: Pension plans are funded to provide an assurance that assets will be available to meet promised benefits. These benefits are not all paid immediately, but rather over a period. It is not required that all the assets necessary to make those future benefit payments be in the pension trust at any given time. An allowance is made for future growth in those assets. As the primary responsibility of the plan’s governance body is to provide for the assurance of future benefits, the level of funding is the ultimate issue of concern. In many cases, the plan’s governance body has other desires, such as to reduce the level of cost and the volatility of that cost to the plan sponsor and contributors to the plan. The paper discusses that benefit of matching durations is to effectively immunize the plan for changes in interest rates. It further explains that the asset allocation process can be improved by considering the liabilities as well as the assets.
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Format: PDF | Size: 80KB | Date: Jan 2003 | Pages: 3
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