I manage a DB company looking to change to DC but I am worried that the participants will complain. I am looking to put some marketing material together to highlight the benefits they will receive by being in a DC plan.
If we do not move to a DC plan, we trying to weigh the benefits of managing our plan from a asset only stand point but I can not determine what the benefit of having an asset only plan would be.
Well, if you’re running a DBP, then an asset-only approach would allow you to capture any excess returns above those required to meet the liabilities. In a reliability-relative approach, you are structuring your assets to have a high correlation with your liabilities, which effectively limits any upside potential.
I am in a DC plan at work, I like it more than the DB, 2 main reasons: 1) no golden handcuffs (ie i don’t have to stay with the company for set amount of time to receive my pensions, i can take my dc plan with me to another company) 2) i can select the asset allocation/securities i want
i think the correct way of asking the question is: was the DB plan manager was correct in using an AO method over the ALM method, right?
As an employee I know that I can manage the investments in a DC plan as I like. I also know that I can pass the remaining assets on to my heirs (although CFAI may not agree with this). I worry about longevity risk however.
I think Hank is right, also take into account the fact that the employee may have investments in vehicles beyond the DC plan, such as insurance, mutual funds, who knows. If the employee can manage his own plan, then he is in a better position to allocate his assets, run different scenarios and can rebalance and so forth if he or his financial advisor deems fit.
The guy is asking about AO or ALM approaches to managing of a DBP assets, as i understood, since it was in the agenda on 02 of June. Definetely, it should be chosen ALM. However, as you remember (may be) inside the ALM there are two approaches either - blank immunisation and immunisation using derivatives for hedging liabilities, nominal bonds, real bonds and … active starategy to earn an active return. Fortunately, the latter had not been asked.