WHEN SETTING AND FORGETTING DOESN’T WORK
Multi-asset portfolios get beyond the glide path for both DC and DB plans
There’s a world of difference between defined contribution (DC) and defined benefit (DB) pension plans, but they do have one major thing in common: both are now using glide paths as a way to reduce risk. For DB plans, a glide path provides a road map to de-risking—a series of trigger points whereby assets gradually shift to lower risk (and lower return) options such as long-term bonds. On the DC side, many plan sponsors are looking to balanced or target-date funds that aim to reduce risk for plan members as they get closer to retirement—they have built-in glide paths that automatically shift members into low-risk assets as they age. In both cases, DB and DC, the glide path has become key to taking risk off the table automatically and over time. Some argue, however, that blind adherence to a glide path has plan sponsors putting their trust in the wrong place—and that simply shifting into bonds at set trigger points based on funded ratio (for DB plans) or age (for DC members) can actually be a risky proposition.
From uncertainty about interest rates to the reality of inflation, there are many factors that require a dynamic approach, not a “set it and forget it” glide-path approach. In this expert roundtable, we take a close look at the top misconceptions plan sponsors have about glide paths, and why they should not abandon dynamic asset management along the way to de-risking. Specifically, multi-asset solutions are on the rise as both DC and DB plan sponsors seek out ways to manage key risks such as interest rates and inflation—and help ensure they don’t fall into the “set it and forget it” trap.
Sponsored by:
