Minimizing Volatility


Market volatility may be an option trader's
friend, but it has caused, and continues to cause,
significant pain and uncertainty for sponsors of
pension plans. Volatility of investment returns
and interest rates have wreaked havoc on the
funded status of pension plans and have forced
employers to make suboptimal, short-term decisions
related to their plans to ease the financial pain.

Shifting the Investment Risk

Many sponsors have been led to believe that "LDI" (which stands for Liability-Driven Investing) is the answer to volatile and unpredictable cash contributions and accounting results for their pension plans. However, as we've witnessed over the past several years, LDI has proven to be an inadequate buffer to volatility. Few sponsors can afford to go "all-in" with an LDI solution and those plans implementing a partial LDI strategy have gained little ground, if any. In response, many sponsors have frozen their pension plans and have "enhanced" their defined contribution plan. The result? Sponsors are budgeting the same amount to pay for retirement benefits for their current employees - and, they are still paying huge sums of money to finance their underfunded frozen pension plans. Even worse, they have shifted all of the investment risk onto the shoulders of their employees.

We believe this outcome is unfortunate, but it was predictable since pension plan designs have long been disconnected from pension plan investments supporting those pensions.

While our competitors have implemented a business model around riding frozen pension plans into the sunset, October Three sees an entirely different horizon. We are designing retirement programs that integrate the advantages of cash balance and defined contribution plans. Our designs minimize volatility, stabilize costs and contributions for sponsors, and foster a more appropriate sharing of risk between employers and employees. And, we are even helping sponsors who have frozen their pension plans, by redesigning their retirement programs so that money which would otherwise be paying off their underfunded frozen plan (old debt) is now funding a well-designed and integrated retirement program.

Is all of this possible? It certainly is, and we'll show you the way.

Explore our Plan Design Solutions

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