According to "Pension Fund Funding Ratios Dipped in Q2" (July 9, 2011), the average pension plan saw its funding ratio decrease by around two percent during the second quarter of 2011. Several factors were at work. First, higher U.S. Treasury yields "led to a lower corporate bond yield curve and pension discount rate" which in turn increased the reported number for what is owed to retirees. Second, gains on invested assets were not enough to offset higher pension liabilities.

What's interesting is that this recent version of the U.S. Pension Fund Fitness Tracker, published by UBS Global Asset Management, cites an economic boost for those plan sponsors that "adopted a pension risk management framework," with ongoing attention paid to market risk, interest rate risk, credit spreads and what they describe as active management risks.

In 2010, the OECD published "Pension Funds' Risk-Management Framework: Regulation and Supervisory Oversight" by Fiona Stewart in which readers are reminded that "Some of the decline in assets recently experienced by pension funds around the world may well have been avoided through stronger risk-management frameworks..."

Given the importance of the topic, this blogger, Dr. Susan Mangiero, is working on a paper about the fiduciary duty to hedge. In the meantime, interested readers may want to check out the SSRN Pension Risk Management e-Journal that is edited by Dr. Susan Mangiero and Dr. Shantaram Hegde.