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How Persistent Low Returns Will Shape Saving and Retirement$
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Olivia S. Mitchell, Robert Clark, and Raimond Maurer

Print publication date: 2018

Print ISBN-13: 9780198827443

Published to Oxford Scholarship Online: October 2018

DOI: 10.1093/oso/9780198827443.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 16 June 2021

Getting More from Less in Defined Benefit Plans

Getting More from Less in Defined Benefit Plans

Three Levers for a Low-Return World

(p.44) Chapter 4 Getting More from Less in Defined Benefit Plans
How Persistent Low Returns Will Shape Saving and Retirement

Daniel W. Wallick

Daniel B. Berkowitz

Andrew S. Clarke

Kevin J. DiCiurcio

Kimberly A. Stockton

Oxford University Press

As global interest rates hover near historic lows, defined benefit pension plan sponsors must grapple with the prospect of lower investment returns. We examine three levers that can enhance portfolio outcomes in a low-return world: increased contributions; reduced investment costs; and increased portfolio risk. We use portfolio simulations based on a stochastic asset class forecasting model to evaluate each lever according to two criteria: the magnitude of impact and the certainty that this impact will be realized. We show that increased contributions have the greatest and most certain impact. Reduced costs have a more modest, but equally certain impact. Increased risk can deliver a significant impact, but with the least certainty.

Keywords:   low-return environment, defined benefit pension plans, active equity management, factors, private equity, hedge funds

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