Liability-driven investing (LDI) has been a hot topic since the financial crisis of 2007–2008. Defined benefit (DB) pension plan sponsor and investment committee members recognize that a nominal investment expected return assumption is not as meaningful if the funding of a plan's liabilities are ignored. Despite this realization, few institutional portfolio managers have been able to combine the philosophy of liability goals based investing with the world of portfolio construction.

In this paper we explore how a liability-driven investing strategy used in pension plans is executed with the liquidity and low-cost nature of exchange-traded funds (ETFs). This presents a thoughtful and suitable LDI portfolio solution for a plan sponsor's objectives and priorities.

Institutional Investments & Philanthropic Solutions is part of U.S. Trust, Bank of America Corporation ("U.S. Trust"). U.S. Trust operates through Bank of America, N.A., and other subsidiaries of Bank of America Corporation ("BofA Corp."). Bank of America, N.A., Member FDIC. Trust and fiduciary services and other banking products are provided by wholly owned banking affiliates of BofA Corp., including Bank of America, N.A.


In defined benefit pension plans, liabilities-driven investing (LDI) is a risk-mitigating strategy used to reduce the volatility of the funded ratio.



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