Cash balance plans have become increasingly popular vehicles in the pension landscape. Al Trezza of BNY Mellon Asset Management offers cash balance sponsors guidelines for an investment strategy that is well-suited to their plan:

• The total return investment strategies common in the defined benefit (DB) environment often are not the ones best-suited for cash balance (CB) plan objectives, but such strategies are still prevalent in a number of CB plans.
• The minimum objective for a “pure” CB plan is to match the interest crediting rate (ICR) that determines the return on the cash balance account liabilities.
• In practice, most CB plans also have some degree of exposure to longer-duration deferred liabilities similar to those of traditional DB plans. Sponsors should consider investments to hedge the interest rate risk based on the unique characteristics of the plan.
• A portfolio that is well-suited to a CB plan can be constructed with a bottom-up approach, starting with cash strategies and adding “tiers” of riskier investments as needed to pursue the plan’s return objectives.

For more information or a hard copy please contact, please contact David Zigas at 617 248-6202

The preceding information is based upon the analysis of historical performance of various asset classes and assumptions with respect to future economic conditions. Past performance is not an indication of future results. This information is not intended to provide specific advice, recommendations or projected returns of any particular BNY Mellon Asset Management product.