Many public pension programs today are making significant, sometimes unpopular, decisions to lower discount rates and alter benefit structures to meet their funding obligations. More than ever, fiduciaries need a framework for decision-making to understand the risks engendered by these types of decisions: one that is clear, simple, and actionable. In our latest paper from our topic of interest series, we introduce the concept of “required return”. The following topics are addressed:
- Building upon discount rates and providing a more direct link between assets and liabilities improves the likelihood that plans will meet their objectives.
- Fiduciaries gain additional investment insight with a simple framework that starts with the question, “What return is needed?”
- The main decisions a board can make are to modify its asset allocation and change its contribution policy. Understanding the risks implicit in these decisions is the goal of this metric.