By: Russ Kamp, CEO, Ryan ALM, Inc.

I’m pleased to share with you the latest thought piece from Ron Ryan, Chairman, Ryan ALM, Inc. Ron shares his wisdom regarding what is the better outcome for a pension plan. Is it a 20% asset growth or a 20% reduction in the cost of liabilities? As you’ll see, he (and I) firmly believe that a 20% cost reduction is the more preferred outcome given the near certainty that the cost savings will be realized, as opposed to the very uncertain outcomes around asset performance.

Plan sponsors focused on the return on asset (ROA) assumption as the primary objective in managing a DB pension continually ride the performance rollercoaster leading to excessive volatility in the funded status and contribution expenses. That makes the process of managing these critical entities and their outcomes so uncertain. Defeasing a portion of the liabilities with the purpose of securing the promised benefits is a sleep-well-at-night strategy that should be adopted by every plan sponsor. As Ron points out, there are many benefits to this approach with enhanced liquidity being just one.

The current U.S. interest rate environment is providing plan sponsors with opportunities to secure the benefits that they haven’t had since the Great Financial Crisis. Don’t let this environment come and go without locking in some cost savings and certainty.