Enhance Multi-Employer Plans Yields Without Sacrificing Safety

Abstract

As trustees and self-directed employee plan participants seek to protect principal and avoid negative quarterly returns, fixed-income investments are experiencing a significant increase in attention. The principal stability of bonds and fixed-income investments has become critical to investors given recent volatility in equity markets and record low returns on money market funds and bank deposits. On a positive note, there are investment strategies capable of enhancing yields without sacrificing the return stability or principal safety multi-employer plans need to fulfill their duty to participants. Three, in particular, are well worth investigating: 1. Treasury Inflation-Indexed (or Protected) Securities 2. Stable value wrappers 3. Enhanced Indexing Stable value has historically been a popular asset class with multi-employer plans. Recent market volatility has accelerated the movement from both equity and more traditional fixed-income to stable value. Although the movement in participant-directed plans is well documented, we are only beginning to see movement in trustee-directed DC and DB plans. Stable Value seems to have the best risk reward payoff when liquidity demands allow it.

Keywords: Union, multi-employer,Taft-Hartley, Principal Stability, Stable Value

JEL Classification: G23, G12