Risk and Asset Allocation Inclusive of Pension Funding, “Full” and Otherwise

Description

The actuarial concept of funding of a pension plan is widely misunderstood. For most defined benefit plans, the largest single economic asset of the plan is the explicit guarantee that the plan sponsor will contribute additional funds, if necessary, to meet benefit obligations. Typically, the value of this guarantee is entirely ignored for actuarial and financial accounting purposes. As such, changes in the economic value of the guarantee go unmeasured, perhaps the largest failing of “performance measurement” in the community of institutional investors.

Risk and Asset Allocation Inclusive of  Pension Funding,  “Full” and Otherwise