Asset-liability management for defined benefit plans involves a careful balance of conflicting objectives.
On one side, the 30-year U.S. Treasury yield is currently at 2.9%, and pension plan return assumptions are about 7%. Clearly, plans need to invest in higher-risk assets to be able to generate sufficient returns to cover their pension obligations.
On the other side, plans want to reduce funded status volatility and mitigate interest rate risk. These objectives favor investing in more conservative assets. Thus, a plan's asset allocation strategy plays a crucial role in the plan's long-term financial stability and the overall progression of its funded status through time.
Securian Asset Management believes that small plans — ones with assets of $200 million or less — often do not receive the same level of asset management sophistication as their larger brethren. Rather, they receive a "set it and forget it" asset allocation, perhaps with an annual check-in, which can be problematic, but there are potential solutions.