The true objective for a defined benefit pension plan is to fund the liabilities (benefit payments) at stable and low contribution cost to the plan. Such an objective should be funded at reduced risk through time. In order to accomplish this objective a plan sponsor and their ASSET consultant need to depart from the roller-coaster ride provided by pursuing the ROA. At KCS (an asset AND liability consultant) we focus first, and foremost, on the plan’s liabilities and funded ratio, which we use to drive the investment structure and asset allocation decisions.
Attached is an overview on the importance of having a custom liability index (CLI) measure your plan’s specific liabilities. Let us know if we can build one for you.