An important component of our asset/liability management is the trading protocol designed for each client to properly align plan assets with plan liabilities.
Recordkeepers of executive benefit plans typically employ a “mirror match” approach to asset/liability management—when a participant adjusts their asset allocation, the recordkeeper and custodian make concurrent trades of the underlying plan assets.
While this methodology keeps assets effectively aligned with liabilities, participant reallocations can lead to frequent trading, resulting in higher costs and triggering unexpected taxable gains for the plan sponsor.
a proprietary system
CapAcuity has developed a proprietary system to more efficiently and accurately manage the alignment of assets and liabilities.
We receive daily plan liability values from a client’s plan recordkeeper, and plan asset data from plan trustees, custodians, TRS counterparties, and insurance carriers. This real-time data enables us to identify where assets and liabilities have become misaligned, and to realign plan assets as necessary.
Our process seeks to ensure that assets remain highly correlated with plan liabilities, minimizing “tracking error” between plan assets and liabilities. By aggregating trades and initiating tax-sensitive trading protocols, we reduce costs and minimize taxable gains for the plan sponsor. Based on detailed financial modeling and simulation, our proprietary system delivers material “tax alpha” via tax optimization and tax-efficient trading protocols.