Sage Advice Asset Liability Monitor 4Q2008

The recent surge in liability directed investing or “LDI” strategies has ignited a renewed interest in understanding how defined benefit (DB) plan liabilities are determined and funded. Each species of this complex legal and financial entity—private, public, and multiemployer—is governed by its own myriad of laws and regulations. In this paper we attempt to demystify one area of consternation—pension plan discount rates. To reduce confusion, we focus on private DB plans, but the liability-driven approach and key observations outlined herein apply to multiemployer and public plans as well.