Corporate Plans Benefit from Liability-matching and Return-Seeking Combo

February 12, 2007 ( - Funding reform has propelled some defined benefit plans to consider investment strategies otherwise left mostly untapped by corporate plans, according to a recent report by the Russell Investment Group.

In addition to fostering a switch from a defined benefit plan to a defined contribution plan, new forces affecting plans have also led corporations to make big changes to their investment portfolios, according to the Russell Pension Report 2007.  

In particular, the report suggests that DB plans can use both return-seeking and liability-matching investment strategies. For instance, a plan might consider swap contracts to manage interest rate exposure or may turn to more aggressive strategies such as long-short investing and global tactical asset allocation to pull in higher returns.

According to Russell, derivatives, such as swaps or futures, provide the advantage of working with a margin, which means more flexibility.

“Today s environment offers a greater potential for separating the allocation decisions, making the pursuit of both liability-matching and risk-seeking not only preferable but entirely possible,  said Robert Blackwell, managing director of research and strategy at Russell and contributing author of the pension report, in the press release. Corporate pension plans can successfully navigate the risk spectrum between liability-matching and return-seeking without compromising either goal.

The full report is at .