Sibson Consulting and Segal Rogerscasey Spotlight: Revisiting the Case for Hedging Interest-Rate Risk

NEW YORK--()--When CFOs, treasurers and other senior financial professionals with responsibility for single-employer pension plans analyze funded-status volatility, they need to be comfortable with the amount of interest-rate risk they take and ensure they are adequately compensated for the risk.

“Ideally, the largest sources of surplus volatility are compensated with higher expected returns,” said Stewart D. Lawrence, Sibson Consulting senior vice president and national retirement practice leader. “However, what we typically observe in conducting a pension plan risk-attribution exercise is that actively adding interest-rate risk comes with little, if any, expected surplus return despite it often being the largest source of surplus volatility.”

Sibson and Segal Rogerscasey’s February 2014 edition of Spotlight analyzes the prevalence of interest rate-risk within pension plans by examining forward looking market views for future interest-rate levels.

The article focuses on two aspects of interest-rate risk:

• projecting interest rate levels and

• the recent increase in interest rates.

This Spotlight also addresses increasing plan sponsor interest in revisiting the extent to which liability duration is matched by the duration of pension assets. Dan Westerheide, Segal Rogerscasey senior vice president and asset liability modeling practice leader, noted the importance of the yield curve being so much steeper at the end of 2013 as compared to 2012. “This means that in order for intentional duration mismatch to ‘pay off’ over the intermediate term, rates would have to rise even higher/faster than they would have had to rise at the end of 2012. Consequently, considering interest-rate positioning relative to current market pricing is now more important than it was just one year ago.”

For more information or to speak to an expert, please contact Mary Feldman at 212.251.5029 or email mfeldman@segalco.com.

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Sibson Consulting (www.sibson.com), a member of The Segal Group, provides strategic human resources solutions to corporate and non-profit employers and professional service firms. Sibson's services include benefits, compensation, talent and performance management, communications, sales force effectiveness and change management. In 2014, The Segal Group is celebrating the 75th anniversary of its founding by Martin E. Segal (http://www.segalco.com/about-us/#anniversary).

Segal Rogerscasey (www.segalrc.com), a member of The Segal Group, is a leading global investment solutions firm that provides innovative, client-driven consulting advice and outsourcing solutions. The firm has been in operation for 45 years and is one of the largest U.S.-based investment consultants. Clients include corporations, non-profit organizations, endowments, foundations, state and local governments and joint boards of trustees administering benefit plans under the Taft-Hartley Act. The firm works with financial services firms through Rogerscasey, a Division of Segal Advisors, and with Canadian clients through Segal Rogerscasey Canada. The firm is also a founding member of the Global Investment Research Alliance. In 2014, The Segal Group is celebrating the 75th anniversary of its founding by Martin E. Segal (http://www.segalco.com/about-us/#anniversary).

Contacts

The Segal Group
Mary L. Feldman, 212-251-5029
SVP, Director of Public Affairs
mfeldman@segalco.com

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Contacts

The Segal Group
Mary L. Feldman, 212-251-5029
SVP, Director of Public Affairs
mfeldman@segalco.com