Assets and Liabilities Need to Work Together

As we’ve discussed on many occasions, the purpose of a DB plan is to meet a promise (liability) that has been made to a plan participant.  Furthermore, this benefit should be provided at the lowest cost possible.  However, in order to do that plans need to stop focusing on the return on asset assumption (ROA) as the fund’s primary objective.  It isn’t!

We, at KCS, believe that DB plans, whether private or public, need to enhance their current actuary / generalist consultant model with a Liability Aware consultant.  The following link highlights the role that we are referencing.

Click to access KCSLiabilityAwareConsultant.pdf

In this role, KCS interfaces with both the actuary and the generalist consultant. We will help determine the appropriate ROA (it shouldn’t be a Goldilocks number) and advise on an asset allocation that reflects the funded status of the plan.  Plan’s should de-risk, especially as their funded status improves.

The current approach of focusing on the ROA has not improved funding, but it has increased cost, as the significant increase in the use of alternatives has been done in an attempt to jump-start returns.  That hasn’t worked!  Let us share with you how we can reduce cost, improve funding, and begin to de-risk your plan.  It is an approach whose time has come.


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