CFO MAGAZINE | DECEMBER 2019

Strategies for Navigating a Low-Rate Environment

How CFOs are positioning their pension plans to handle volatility


 

Because a low-discount-rate environment is here for the foreseeable future, and perhaps longer, senior finance executives need to position their companies — specifically their pension plans — to weather volatility.

 

“It’s all about destination planning and timely execution,” says Scott Jarboe, Partner, Mercer. “You want to be nimble in your ability to de-risk on the way up and experience less deterioration on the way down. For many sponsors it may not be time to move to a fully hedged position, but sponsors should have a plan to opportunistically take interest rate risk off the table.”

 

This is also where the plan’s governance model is critical, to ensure nimble de-risking in volatile times. “An Outsourced Chief Investment Officer (OCIO) model can assist in timely rebalancing of the portfolio across growth and hedging assets, and will help the plan sponsor stick to the de-risking plan,” says Jarboe.

 

Most pension plan sponsors have an implicit prediction of rising rates, Jarboe points out. “That prediction has consistently failed for more than five years, and it highlights the fact that the potential direction of interest rates is not a compensated risk that sponsors should be using as a basis to make strategic pension plan decisions.”

 

This article will cover untapped opportunities, de-risking pension strategies and how OCIOs help keep plans well funded.

 

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