Demystifying de-risking glidepaths for pension plans

De-risking glidepaths has been a core component of the investment strategy for most sizable pension plans for at least the last decade. However, the reasons glidepaths can be effective aren’t always obvious. This paper will help to demystify the core concepts underlying glidepaths — what they are, why they’re commonly used for pension plans, and how a customized glidepath should be designed for a given plan. 

A glidepath is a dynamic pension investment strategy centered on de-risking a plan’s asset allocation as the plan’s funded status improves. This is generally accomplished by gradually shifting from growth assets to liability-hedging assets.

At a high level, glidepaths are used to help:

• Meet fiduciary obligations without constant committee oversight by establishing a long-term framework for future de-risking at set trigger points.
• Set appropriate strategic allocation targets for the plan as its funded status evolves.
• Protect investment gains and funded status improvement from backsliding.
• Control risk and volatility while helping to retain potential upside by avoiding excessive risk-taking

Read the full paper

Read our paper for additional insights into creating a well-designed glidepath.