U-Shaped Glidepath Strategy for Pension Overfunding

This document is a technical report that discusses a U-shaped glidepath strategy for managing surplus in defined benefit pension plans. It outlines the performance advantages of this strategy compared to traditional glidepaths, particularly for plans that are significantly overfunded. The report notes that a U-shaped glidepath allows for increased allocation to return-seeking assets after reaching a fully funded status, which can lead to greater surplus generation while still safeguarding against potential shortfalls. The authors emphasize the importance of reassessing glide path designs for sponsors in surplus positions and document various uses for surplus assets without necessitating plan termination. The report includes a literature review, a framework for implementing the U-shaped glidepath, and case studies to illustrate its application. Additionally, it addresses the fiduciary responsibilities of plan sponsors and the potential tax implications of surplus asset management. The findings suggest that a dynamic investment strategy can optimize surplus utilization while maintaining participant benefit security.