A Different Way of Looking at Pension Risk
Companies engaged in more aggressive pension investment strategies can face the potential for larger contributions should performance lag their liabilities. Many implement these strategies knowing they have ample financial flexibility to deal with potential negative outcomes arising from an asset-liability mismatch. How comfortable are they that the financial position five and even 10 years ahead will provide the same flexibility?
In this paper, Tom Harvey presents the case for looking at pension risk in a different way. Pensions carry a host of risks, the most challenging risks stem not from the pension liability, but rather the changing financial position of the plan sponsor.
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