Defined Benefit

Construction a Glide Path for Defined Benefit

June 2018

A glide path, in the context of a defined benefit pension plan, seeks to identify how a plan’s asset allocation will evolve over time as the plan’s funded status improves. The linked Insights outlines Rocaton’s principals for constructing a glide path. For those plan sponsors that have not yet embraced the concept of a glide path, but are contemplating implementing one, and for plans with an existing glide path, we feel that the these principles may serve as a helpful guide.

 

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Tax Reform: A Guide for Pension Plan Sponsors

July 2017
Republican leadership has stated its intention to pursue corporate tax reform. If passed as proposed, the reform may create an incentive for plan sponsors to direct funds into underfunded defined benefit plans now rather than later. In addition, the proposed tax reform has the potential to impact the long corporate bond market. The attached Insights details factors that may influence pension contribution policy and provides a framework for plan sponsors to consider when constructing long duration portfolios.

 

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Examining Completion Management for Pension Plans

June 2016
The term “Completion Manager” has become part of the pension lexicon for plan sponsors and long duration asset managers over the past several years. However, the term is not easily defined given that completion mandates vary widely in terms of their scope and objectives. This Insight piece will seek to define completion management and discuss the potential role(s) a completion manager can play, evaluate the appropriateness/usefulness of a completion mandate relative to the incremental cost and complexity, and identify characteristics necessary to execute completion services effectively.

 

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Bulk Terminated Vested Lump Sum Offerings

August 2015
Over recent years, lump sum offers to terminated vested participants have gained popularity as a pension de-risking initiative. This is largely because of a greater focus on reducing overall pension risk by plan sponsors, regulatory changes, and to some extent market conditions. In this Rocaton Insights, we seek to help plan sponsors understand the potential reasons for a terminated vested lump sum program, the effects such a program can have on key pension costs and measures, and the potential changes in a plan’s risks after the program is executed.

 

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Incorporating Alternatives in an LDI Growth Portfolio

June 2015
Many pension plan sponsors following a liability driven investing (“LDI”) approach have split their portfolios into hedging assets and growth assets. Typically, public equity strategies have constituted the vast majority of growth portfolios. Historically, alternative investment strategies have demonstrated an ability to meaningfully enhance the risk/return profile of a long-only equity allocation. In this Rocaton Insights, we detail several alternative asset classes which may be appropriate for inclusion in an LDI growth portfolio.

 

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Liability-Driven Investing Principles for Pensions

March 2015
Liability-driven investing (LDI) for corporate pension plans can take on many flavors. At its most basic, it simply represents a framework whereby the sponsor views, assesses, and invests assets in the context of liabilities. This Rocaton Insights addresses a number of topics related to the LDI framework and explains, at a high level, a number of Rocaton’s LDI philosophies.

 

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Alternatives to Long Corporate Bonds

February 2015
Along with long government bonds, long corporate bonds have been the predominant asset class that plan sponsors have used in an effort to hedge their pension liabilities. Although long corporate bonds are well suited to hedge pension liabilities, hedging is an imperfect exercise for a number of reasons. The attached Insights explores other long duration assets that may serve as a complement to plan sponsors’ current LDI programs.

 

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Pension “Smoothing” – The Highway and Transportation Act of 2014

September 2014
On August 8, 2014, President Obama signed into law the Highway and Transportation Funding Act of 2014(HTFA). This legislation theoretically helps to fund the Highway Trust Fund by reducing corporate pension contributions, which are tax deductible. Required pension contributions will be reduced by extending the interest rate stabilization provisions that had been introduced by the Moving Ahead for Progress in the 21st Century Act (MAP-21).

 

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PBGC Variable Rate Premium Methodology Determination

September 2014
In light of 2014 savings, many corporate plan sponsors are currently faced with a decision regarding the liability discount rate methodology they will use to determine the Variable Rate Premium (VRP) payable to the PBGC for the 2014 plan year. In this Rocaton Insights, we explain the key considerations and possible implications of this decision.

 

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The Great Rotation? Implications of the Recent Volatility in Interest Rates

October 2013
Most financial market commentators have been calling for a secular rise in interest rates for several years only to find interest rates reaching new lows. Is the recent sharp jump in rates the beginning of the secular rise many forecasters have been predicting or is this just another false alarm? In this Rocaton Insights, we review recent Federal Reserve market actions and suggest alternatives for investors to position their fixed income portfolios.

 

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