- 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.
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