A PRACTITIONER’S OBSERVATIONS ON SOME INNOVATIVE IDEAS FOR PENSION PLAN INVESTMENT By:

Many defined benefit plans are in deficit. Proponents of financial economics would not be surprised. They would note that the investment policies of many plans, which involved extreme mismatches of assets and liabilities, were likely to lead to funding deficiencies at some point in time. Where should investment policy go from here? This paper examines a number of possible approaches and identifies practical limitations in their implementation, including: • Securitizing the unfunded liability, full-funding of accrued liabilities, and investing in suitably matched investments; • Continuing to invest with a mismatch strategy but hedging the risk using Margrabe options; • Continuing to invest with a mismatch strategy but incorporating more flexibility into the pension deal in order to share more risk with plan participants; • Using dynamic asset allocation techniques