In the advisory letter, Louis J. Campagna, chief, division of fiduciary interpretations, office of regulations and interpretations, said plan fiduciaries have broad discretion to define investment strategies for their plans.
"A fiduciary would not, in the view of the department, violate their duties under (ERISA) solely because the fiduciary implements an investment strategy for a plan that takes into account the liability obligations of the plan and the risks associated with such liabilities and results in reduced volatility in the plan's funding requirements," the letter stated.
Many plan sponsors are examining whether to better match plan liabilities with assets. The issue became more pressing under the new Pension Protection Act of 2006. The new law imposes more stringent funding requirements on companies.
In addition, a new Financial Accounting Standards Board standard requires companies to disclose the funded status of their plans more accurately and prominently in their financial statements.
LDI strategies — being marketed aggressively by JPMorgan Asset Management, New York; UBS Global Asset Management, Chicago; Goldman Sachs Asset Management LP, New York; and other money managers — emphasize fixed-income investments and derivatives such as interest-rate swaps to better ensure a plan's liabilities are covered.
The strategies, which can provide smaller but more predictable returns than traditional straight equity plays, reduce the potential need for massive sponsor contributions. As such, the strategies can be perceived as being in the best interests of a plan's participants and sponsors alike.
JPMorgan officials would not comment directly on why they sought the opinion. But in a brief statement, David Oaten, managing director and head of JPMorgan's North American pension advisory group in the company's investment banking division, said: "This advisory opinion validates techniques which take liabilities into consideration for pension risk management."
And Donald Myers, an ERISA attorney for Reed Smith LLP, Washington, who is representing JPMorgan Chase, said the advisory opinion would give "greater comfort" to plan fiduciaries who want to seek a better match between a plan's liabilities and its assets.