Equity prices have strongly recovered since the Great Recession, bringing some benefit to corporate pension funded status, but pension plan sponsors have still faced periods of unprecedented volatility, a prolonged slowdown in global growth, and historically low interest rates.
Alexi Maravel, director of Cerulli’s institutional practice, observes that the LDI topic is “probably the most competitive pricing environment among the different types of institutional custom solutions available today.”
John Lowell, with October Three, says for two types of DB plans, investment-driven liabilities (IDL) is almost risk free for plan sponsors and provides more meaningful benefits to participants.
Despite market volatility and a continued low interest rate environment, DB plan sponsors can still establish an effective LDI strategy to derisk their plans.
Nearly 85% of pension plans paying PBGC premiums have less than 1,000 participants—so it only makes sense that small plans make up a significant proportion of the ERISA industry’s annual risk transfer business.
A lot of parties are involved in even a modestly sized pension risk transfer deal; aligning their interests, timelines and incentives for success is no small task.
Market volatility and funding relief allowing lower required contributions have impacted the value of LDI and other pension plan de-risking strategies, SEI says.
Acuitas
establishes new long/short equity option designed for retirement plans, and LGIMA touts
new liability-based funds for small and mid-sized pensions.
Plan sponsors looking to enact a PRT transaction, but lacking sufficient cash, might consider “hibernating” their portfolio until a more favorable risk transfer opportunity arises.