A fully-funded pension plan can invest surplus assets in equities provided it reduces the proportion in equities when the value of the fund drops near the accumulated benefit obligation. This strategy is referred to as
A) immunization.
B) hedging.
C) diversification.
D) contingent immunization.
E) overfunding.

Question

Quizplus · Accepted Answer

Contingent immunization is a strategy that allows for investing in equities or other growth-oriented assets when the fund is fully funded or has a surplus. However, it requires shifting to more conservative investments, like bonds, to ensure obligations are met if the fund's value approaches the accumulated benefit obligation level. This approach combines active management with a safety net to protect against underfunding.

A Fully-Funded Pension Plan Can Invest Surplus Assets in Equities