RT Journal Article
SR Electronic
T1 The Blind Side: Managing Downside Risk
in Corporate Defined-Benefit Plans
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 65
OP 83
DO 10.3905/jpm.2013.39.3.065
VO 39
IS 3
A1 Abdullah Z. Sheikh
A1 Jianxiong Sun
YR 2013
UL https://pm-research.com/content/39/3/65.abstract
AB Following the recession of the early 2000s, defined benefit corporate pension plans faced dramatic funding challenges. They had barely recovered before the recession of 2008 to 2009 sent funding ratios tumbling once again. Many plan sponsors must now make larger contributions than they originally budgeted, in order to bring their plans back to full funding. This article aims to deepen the current discussion of risk reduction in the context of defined benefit plans. It investigates two key issues. First, its authors analyze the effect of non-normality of asset returns on a defined benefit pension plan’s liabilities. They argue that analytical frameworks that assume normality can lead to an underestimation of downside risk, a concern with regard to contributions. Second, the authors develop a multi-dimensional risk-management framework for managing contribution risk.TOPICS: Pension funds, financial crises and financial market history, VAR and use of alternative risk measures of trading risk