pension plan

CFA Level III
#1

Senior management tells the plan sponsors that they will be offering a one-time, lump sum early retirement package to eligible employees beginning in the next 24-30 months. Senior management estimates that 10% of the existing company workforce will accept this retirement package.

Is the statement: “given the expected lump sum retirement payout in the next 24-30 months, the cash flow matching strategy is clearly better for the pension plan because of the certainty of the company’s pension obligation” correct?

#2

Yes

#3

I thought it should be correct. But the answer is: Cash flow matching generally locks in the lowest return. The majority of the pension plan funding requirements are unknown. These other payouts are less certain and cannot be addressed by cash flow matching.