During the financial crisis, pension plans saw a drop in funded status averaging around 30%. They raced to say, 'What can we do to prevent this from happening again?' Moving into long bonds was the easiest step plan sponsors could take to implement an LDI framework. The focus on plan objectives really has shifted over those 10 years to things like minimizing cash contributions into the plan, controlling volatility of the funded status and protection of the current status, minimizing [Pension Benefit Guaranty Corp.] premiums, and exit strategies for frozen or closed plans. LDI went from being synonymous with long-duration bond strategies to more of a framework for managing total pension risk with a focus on downside protection.
The real shift is the benchmarks that plan sponsors use. Today, the benchmark is the liability rather than public benchmarks.