The Lucky Charms Of Pension Risk Management

With St. Patrick’s Day now officially in the rear view mirror, I thought I’d take the opportunity to craft a St. Paddy’s day themed blog post. That was the easy part. Then came trying to figure out how to cogently connect the two (Irish holiday & pension finance) in a way that made sense, was informative, and interesting to read. Not 100% sure if this is going to fit the bill, but nonetheless it should be mildly entertaining for those of you nursing hangovers.

Lucky Charms (the iconic General Mills cereal), also known as “the nectar of the gods” and a leading driver of the US obesity & diabetes epidemic, is best known for its wonderful colored marshmallows which come in 8 different shapes. The shapes represent Lucky’s (the leprechaun guy on the cereal box) charms, each having its own magical powers. As I started to think about this and try to relate it somehow to the pension market, it seemed that these 8 lucky charms could be easily analogized to 8 emerging best practices in pension risk management. Below, I bestow upon you The Lucky Charms of Pension Risk Management.

#1: Long Bonds: the “toe in the water” LDI weapon of choice…easy and relatively painless

#2: Funded Status Monitoring: the annual valuation process ain’t cuttin’ it anymore

#3: Investment Outsourcing: most pension committees lack governance processes and decision-making agility

#4: LDI Glidepaths: averaging into cost-effective liability hedging (see #2 & #3 above in order to tactically execute here)

#5: Terminated Vested Lump Sum Windows: begin strategically settling liability, expense savings

#6: Annuity Settlements: reduce the size and complexity of the pension program  see my older post linked below:

#7: Data Cleanup: you know…..those files sitting in the cabinet down in HR

#8: Accelerated Contributions: a worthy consideration for financially flexible organizations

So there you have it, the 8 Lucky Charms of Pension Risk Management. However, as we all have often heard, “you make your own luck in life”. Good things will happen to pension sponsors who are aware and actively considerate of the items above. Thanks for reading, that’s all for now…I need to go find some of those marshmallows…they are after all “MAGICALLY DELICIOUS”!

  1. Cathy said:

    Nice piece

    • Thanks Cathy, Appreciate the feedback!

  2. Samantha said:

    Pretty great post. I simply stumbled upon your blog and wanted to say that I’ve truly loved browsing your blog posts. In any case I’ll be subscribing in your rss feed and I hope you write once more soon!

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