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  1. What a Long Strange Trip It's Been

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What a Long Strange Trip It’s Been—Looking back at PBGC special financial assistance

Michael Buchenholz, Alex Schneider and Thomas Villanova

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IN BRIEF

  • The combination of higher rates and final rule changes to the Pension Benefit Guaranty Corporation’s (PBGC’s) special financial assistance (SFA) program has dramatically improved prospects for SFA-eligible plans achieving long-term solvency.
  • Recent allocations of SFA funds have generally been at the lower end of the risk spectrum, but a deterioration in market conditions could encourage trustees to expand their use of return-seeking assets (RSAs).
  • When selecting an SFA investment provider, investors should consider the provider’s ability to adapt to a changing legislative and market backdrop. A robust compliance and reporting function can be critical for passing a PBGC audit.
  • Quantifying SFA portfolio statistics and translating them into tangible metrics like the expected and downside lifetime of funds can help trustees balance risk and return trade-offs.
  • Our most common SFA implementation has been three to five years of cash flow matching, with an alpha component on top. However, each plan is unique, and there is not a one-size-fits-all solution.
  • The ability to use securitized assets has been a game changer in our SFA implementation, particularly for longer-dated cash flow matching mandates.

Looking back at PBGC special financial assistance

READ THE REPORT

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision, and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own professional advisers, if any investment mentioned herein is believed to be suitable to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.

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