By: Russ Kamp, Managing Director, Ryan ALM, Inc.
I published a year-end post (actually December 27, 2021). Here was the concluding paragraph:
So, in conclusion, 2021 was a terrific year for pensions. Now what? Given the improved funding and general expectations for more challenging environments for both equity and bond markets, plan sponsors should seriously consider reducing risk. It would be a travesty to waste all this good news by letting asset allocations remain static and subject to the whims of the markets. Use this unique time to reconfigure your fixed-income exposure to better manage assets versus plan liabilities. This reconfiguration will dramatically improve the plan’s liquidity while eliminating interest rate risk for the portion of the portfolio that will now focus on defeasing liabilities. This action will also buy time for the plan’s alpha assets (non-fixed income) to grow unencumbered, as they are no longer a source of liquidity to meet benefits and expenses. Furthermore, the buying of extra time allows markets to recover should we witness another major market correction. As we conclude 2021 we celebrate the great success enjoyed by Pension America. But, now is not the time to sit on one’s laurels.
Markets are down across the board, the US Federal Reserve is threatening to aggressively pursue a higher rate strategy to thwart inflation, the war in Ukraine continues unabated, and yet little has been done by Pension America to take some risk off the table. What will it take to finally get away from the pursuit of the ROA and focus on securing the promised benefits? There are consequences to maintaining the status quo. Please refer to my February 24, 2022 blog post for a reminder. Such an unnecessary waste!