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December 5, 2016

A Strategy That Pays Dividends – Dividend Tilts in Taxable Insurance Portfolios

Taxable insurance portfolios can enhance returns by employing the tax code’s preference for dividends. By orienting their holdings toward equities that pay higher dividends, taxable investors can shift their total return to the more favorably-taxed dividend return component and away from the price return. The end result: after-tax alpha relative...

March 9, 2016

NISA’s Target Date Glidepath – Designed for Retirement Security

The retirement landscape is shifting, as the workforce grows older and increasingly relies on its defined contribution plans for retirement security. NISA's target date glidepath design seeks to manage risks that undermine the ultimate goal of retirement: sustainable and stable income. Our multi-asset and risk-controlled solutions can be employed in...

November 9, 2015

The Full Picture on Partial Buyouts

Plan sponsors may be disappointed if they expect to eliminate most of their pension risk with a partial buyout. Unless a buyout is paired with a hibernation strategy, the sponsor may spend time and money arriving at an outcome that leaves a lot of pension risk unmanaged. A hard look...

May 7, 2015

Regulators Pave the Road to Retirement Income

We’ve witnessed a flurry of new guidance and regulations from both the Department of Treasury and Department of Labor related to retirement income. The growing retirement crisis has employees, employers and the government recognizing that this shared concern needs shared solutions. Washington has shown its focus on removing barriers and...

March 6, 2015

Credit Where it’s Due

When de-risking with liability driven investing, pension plans must decide on the right blend of corporate bonds and Treasuries to hedge their liabilities. We look at the forces that can drive this decision and find that the mix of hedging bonds depends on changing market conditions. Plans should periodically examine...

December 10, 2014

Pension Buyout Reality Check

Recent annuity purchases highlight the need to examine what drives their pricing. Plan sponsor announcements that allude to “par” settlements relative to accounting values warrant a closer look at the plan’s actuarial assumptions before reaching any conclusions about the attractiveness of a buyout’s economics.

December 3, 2014

The Beauty of the Bundle

DC participants want the most for their money when choosing a retirement income strategy. While annuities can offer higher income, that value is partially reduced by expenses and the loss of control and liquidity. We quantify these drawbacks and find that the most efficient way to fund retirement spending may...

September 19, 2014

Long Live Longevity Annuities

DC plans can now offer deferred “longevity” annuities that provide income in the later years of retirement. This is good news for those participants who want the peace of mind that they won’t outlive their assets while retaining control over most of their portfolio.

July 31, 2014

The Long View on Short Rates

Since the 2008 financial crisis, the market has suggested a rapid rise in short-term rates to a higher equilibrium level. And while that future equilibrium yield has fluctuated between 4-5%, it is currently at the low end of the range. Will the market’s expectations about future interest rates continue to...

May 16, 2014

Refocusing on Retirement Income Risk

Fixed income allocations in defined contribution plans, while perceived as low risk, may actually expose participants to substantial volatility in retirement income. To reduce this risk, sponsors can apply duration-matching techniques when designing target date funds or managed accounts. This offers participants stability in their retirement income expectations and customization...

May 8, 2014

Spreading Confusion

We have observed (with some bemusement) how the financial media often compares the yields on different countries’ debt without adjustment for the different currencies in which the debt is denominated. By overlooking a currency adjustment, investors may get a distorted risk-return picture when comparing sovereign bond yields.

February 18, 2014

Cash on the Barrelhead

LDI hibernation strategies may present an opportunity to de-risk at a lower expected cost and on a more flexible contribution schedule than annuity buyouts. Additionally, plans that have not yet de-risked may be surprised by how little their equity allocations reduce expected contributions, and how much contribution volatility they may...

August 12, 2013

At the Crossroads

Many pension plan sponsors and fiduciaries are confronting perhaps the most important decision in the plan’s life – whether to pursue an internal de-risking strategy or pay an insurer to offload the liability. We highlight some key considerations for those faced with this choice, and explore the components of the...

April 30, 2013

Putting Longevity Risk in its Place

Pension plans run the risk that actual beneficiary lifespans can exceed those assumed in their liability projections. We estimate the risk to be about 0.4% annually in funded status terms. While longevity risk should not be ignored and can be managed, it is small relative to the market risks embedded...

March 20, 2013

Contribution Relief with a Catch

At first blush, MAP-21 would appear to make pension plan contributions less likely in the near term. However, it also makes pension deficits more expensive by hiking the PBGC’s underfunding charge (the variable rate premium). The rise to nearly 2% on each dollar of deficit may encourage sponsors to voluntarily...

January 30, 2013

Defining the Pension De-Risking Spectrum

Pension de-risking need not be an all-or-nothing decision. In fact, plan fiduciaries may be surprised by the degree to which pension risk profiles can be changed – marginally or materially – through asset allocation decisions and liability-driven investment (LDI) techniques. While annuity buyouts define the end point of the so-called...

January 6, 2013

The Credit Rating Impact of Pension De-Risking

By simply de-risking their pension plan, companies can realize most of the benefits of annuity purchases without incurring the upfront liquidity costs or committing to an irreversible decision. Along with the reduction in pension volatility, de-risking should improve credit ratings for some companies with large pension plans relative to their...

November 27, 2012

Efficient Tax Management in Taxable VEBA Portfolios

Reducing tax consequences in equity portfolios offers tangible benefits in the current tax environment. Three key decisions that directly influence the after-tax performance of such portfolios include 1) portfolio dividend tilt, 2) portfolio turnover, and 3) capital gain/loss realization. Each of these decisions should be evaluated in the context of...

October 11, 2012

Funding Relief and Implications for Pension Investing

The recently-passed Moving Ahead for Progress in the 21st Century Act (“MAP-21”) provides temporary funding relief for corporate defined benefit plans. In this piece, we explain how the legislation effects regulatory discount rates and review the impact of MAP-21 on a hypothetical plan’s PPA reported funded status and required contributions....

September 26, 2012

PSRX Overview

NISA’s proprietary Pension Surplus Risk Index (PSRX®) and supplemental data offer plan fiduciaries a means of monitoring plan funded status volatility and the ability to compare the levels of risk in their plan to the overall defined benefit universe.

September 26, 2012

PSRX Guide

August 15, 2012

Corporate Bond Scarcity? The Case for Separating Interest Rate and Spread Risks

U.S. pension plan demand for long duration corporate bonds has been and is expected to remain at a high level. Nonetheless, some sponsors have delayed implementing strategic corporate bond programs because of tactical views on Treasury yields. Given the ease of managing Treasury duration, this need not be the case.

October 5, 2011

Prospective Funded Status Volatility

Negative performance of risk assets, coupled with lower interest rates, has had the obvious effect of reducing funded status for most corporate defined benefit pension plans. Though perhaps less obvious, higher prospective volatilities have implications for both asset allocation and interest rate hedging strategies.

August 2, 2011

Break-even Yield Curve

Like any market, timing interest rates is challenging. This brief addresses one key, and often overlooked, aspect of interest rate levels – specifically, rate changes that are currently priced into the market.

July 31, 2011

Dynamic Liability Driven Investing

Pension plans have used Liability Driven Investment (LDI) strategies for years. In this brief we introduce a more comprehensive platform: Dynamic LDI. The improvement Dynamic LDI offers stems from the relationship between funded status and asset allocation. The central tenet of the strategy is the “dynamic” reduction in risk as...

May 27, 2009

Interest Rate Hedges

Interest rate markets have experienced pronounced volatility in recent years. Many pension liability hedge strategies that relied heavily on derivatives and Treasury bonds outperformed changes in reported liabilities. The question that arises is: Are strategies that utilize interest rate swaps still effective at reducing the Plan’s funded status risk?

December 18, 2008

Considerations Surrounding Corporate Bonds in Pensions

Widening credit spreads increases focus on the suitability and attractiveness of corporate bonds as pension plan investments. This paper examines one aspect of these issues – reducing funded status volatility by better matching the sensitivity of the liability’s discount rate to credit spreads using corporate bonds.