Fight Interest Rate Risk with Fixed Income

An analysis has found a fixed-income strategy that may work regardless of interest rate behavior, according to Principal Financial Group.

In its report, “Myth Busting: It May Be Possible to Reach DB Plan Objectives Regardless of Interest Rates,” Principal notes that fixed-income allocations are closely tied to interest rate levels, but no one can accurately predict whether they will rise or fall. This uncertainty can leave defined benefit plan sponsors open to unnecessary risk and potentially higher cost.

The analysis covered by the report finds a combination of core and very long bonds that match a plan’s liability duration comes out on top in a significant percentage of interest rate scenarios.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

The report authors modeled three fixed-income strategies in three interest rate scenarios—with rates rising, falling or staying the same—over a 10-year period. The strategies were evaluated for the impact to funded status and total accounting cost.

“Contrary to conventional wisdom, our analysis finds that a middle approach to bond duration will, under a broad range of economic outcomes, lead to the best combination of the lowest consistent cost, the least volatility and the highest return,” says Barry Young, consulting actuary of retirement and investor services at The Principal, based in Des Moines, Iowa. “Instead of basing fixed income strategy on an estimate of where interest rates will head, plan sponsors could use this bond duration approach to meet objectives in any interest rate environment.”

He adds: “These findings are a call to action for defined benefit plan sponsors and their financial professionals to evaluate and maybe modify their fixed-income strategy."

More information on the report can be found here.  

Mercer Expands Admin. Sales Team

Mercer hired Mark Lawson and Ani Chatmajian within its U.S. benefits administration sales team.

Lawson works out of Phoenix, Arizona, and serves as benefits administration sales leader for Mercer’s west region. The role includes leadership of all sales-related efforts in the region, with an emphasis on health and benefits, defined contribution, defined benefit and total benefits outsourcing administration solutions.

Before to joining Mercer, Lawson served as a director at Information Services Group (ISG). Lawson also held positions at Merrill Lynch, Wellspring Resources and The Wyatt Company. He earned a B.S. in business administration and finance from Old Dominion University.

Never miss a story — sign up for PLANADVISER newsletters to keep up on the latest retirement plan adviser news.

Chatmajian is based in Hoboken, New Jersey, and serves as defined benefit solutions leader. In the role she will work closely with sales, consulting, delivery and product teams to improve Mercer’s position as a consulting-based administrator.

Before this new role, Chatmajian worked as vice president of workplace investing implementation at Fidelity Investments.  Earlier in her career she held positions focused on technology and benefits outsourcing services at Affiliated Computer Services (ACS), Mellon Financial Corporation, PwC and Buck Consultants.

Chatmajian earned a B.A. in mathematics from Fairleigh Dickenson University.

Both new hires report to Bill Beauchamp, Mercer’s U.S. benefits administration sales leader.  

«