US - The recently passed Pension Protection Act will push US companies towards strategies that better hedge their long-term pension liabilities, according to Watson Wyatt Investment Consulting.
The law, coupled with new accounting rules, will create higher funding targets, restrictions on smoothing and requirements for valuing pension assets and liabilities at a market basis, said Mark Ruloff, director of asset allocation at Watson Wyatt.
"These factors are prompting companies to look for more predictable returns through liability-driven investing (LDI),” he said.
Watson Wyatt have recommended the use of liability-driven strategies in over 90% of its asset allocation work for US companies conducted in the past year.
The consultant said its asset allocation methodology made extensive use of LDI concepts to achieve funding status predictability in the post-reform environment.
Carl Hess, director of Watson Wyatt’s investment consulting in North America, added: “A greater emphasis on liability-driven investing will help US companies get ahead of the curve by providing plan sponsors with enhanced protection and performance over the long term. That can only help the overall health of the defined benefit system.”
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