Liability indices: MethodologyThe iBoxx US Pension Liability Index – Aggregate mimics the overall performance of a model defined benefit plan in the US, taking into consideration the passage of time and changes in the term structure of interest rates. The index is based on actual liability profiles, and mimics the investment grade yield curve. It is therefore more appropriate than most existing indices for measuring the performance of defined benefit plans. This index (along with its related active member and retired member indices) is published daily, using the LIBOR interest rate swap curve as the discount curve, a highly liquid universe. This provides the flexibility to use combinations of the indices in order to accurately represent customized liability profiles based on a plan’s specific participant population.
Exhibit 1: Strong Increase In Funding Ratio, Driven Mainly By Decreasing Liabilities - US Pension Fund Fitness Tracker Of The Typical US Corporate Plan’s Funding Ratio (Graphic: Business Wire)
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