Perspectives: Don't Kill the Golden Goose! Saving Pension Plans

Posted: 2 Feb 2007

See all articles by M. Barton Waring

M. Barton Waring

Barclays Global Investors - Client Advisory Group

Laurence B. Siegel

CFA Institute Research Foundation; Ford Foundation

Abstract

Defined-benefit (DB) pension plans are an endangered species; they are perceived as too risky and costly. But the emerging substitute, the defined contribution plan, has many shortcomings. The risk of DB plans can be controlled, first, by modeling the liability in terms of its market-factor exposures through surplus (asset minus liability) optimization. Then, sponsors may hold the minimum-risk position (a liability-defeasing portfolio) or they may move up on the efficient frontier - taking equity and other risks. The economic cost of a DB plan also needs to be managed, but it is a matter of managing the size of the pension promise; it is not an asset allocation problem.

Keywords: Portfolio Management, Asset/Liability Management, Investment Policy, Risk Measurement and Management, Multi-Asset Portfolios

Suggested Citation

Waring, M. Barton and Siegel, Laurence B., Perspectives: Don't Kill the Golden Goose! Saving Pension Plans. Financial Analysts Journal, Vol. 63, No. 1, pp. 31-45, January/February 2007. Available at SSRN: https://ssrn.com/abstract=960548

M. Barton Waring (Contact Author)

Barclays Global Investors - Client Advisory Group ( email )

45 Fremont Street
San Francisco, CA 94105
United States

Laurence B. Siegel

CFA Institute Research Foundation ( email )

United States

Ford Foundation ( email )

320 East 43rd Street
New York, NY 10017
United States

Register to save articles to
your library

Register

Paper statistics

Abstract Views
833
PlumX Metrics