Pension Surplus Investment Strategy Framework

This technical report outlines a framework for managing pension surplus assets in corporate defined benefit plans. It presents three potential paths for investment strategies: hibernation of the plan to maintain surplus, maximizing surplus for specific allowable uses under pension law, and funding future benefit accruals. The report discusses the implications of each path, including the associated risks and potential rewards. It also includes insights from an informal survey of plan sponsors regarding their current surplus objectives, revealing a preference for funding future benefit accruals. The report emphasizes the importance of aligning investment strategies with specific objectives and highlights best practices in portfolio construction. Additionally, it examines case studies to illustrate the outcomes of different investment approaches and provides recommendations for asset allocation, focusing on the balance between return-seeking and liability-hedging assets to mitigate risks of future deficits.