October 28, 2010 (PLANSPONSOR.com) - A new paper by MetLife entitled "Topics in Pension Risk Management: The Role of Partial Risk Transfer in a Dynamic Asset Allocation Strategy" discusses Dynamic Asset Allocation (DAA) strategies within DB plans.
The paper outlines the key features of three major approaches to investment management and risk reduction:
- traditional asset allocation,
- Liability-Driven Investing, and
- Partial Risk Transfer.
When plan sponsors consider such a strategy, they also may want to consider the tactical use of annuities—a Partial Risk Transfer—as an intrinsic part of the strategy, according to the report.
Dynamic Asset Allocation refers to a planned, phased transition to a less return-driven, more liability-driven asset allocation as a DB plan’s funded status improves. This is typically accomplished by moving to a “long” (highly interest rate sensitive) bond portfolio, which roughly links the values of the assets and liabilities.
For more information, contact Charles Blair, Vice President, Retirement & Benefit Funding, MetLife, at (903) 469-3956.