Pension Fund Perils: Why Conventional Pairing of LDI with De-Risking Glide Paths Produces Inferior Outcomes

Abstract

Combined use of traditional Liability Driven Investment (LDI) and funded status responsive de-risking strategies should be decoupled or rebuilt. Embedded inconsistencies in the treatment of risks in these two elements of what has become a popular pension strategy cause irreconcilable conflicts in their execution and imperils the positive pension fund outcome. This article provides a critique of the combined LDI/de-risking Glide Path strategy as currently implemented by many pension plan managers and also provides an example of an alternative solution that better improves pension plan outcomes.