An important component of our asset/liability management is the trading protocol designed for each plan sponsor to properly align plan assets with plan liabilities.
Recordkeepers of non-qualified plans typically employ a “mirror match” approach to asset/liability management—when a participant makes trades to re-allocate their accounts, 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 unanticipated taxable gains for the plan sponsor.
a proprietary system
CapAcuity has a proprietary system to more efficiently and accurately manage the alignment of assets and liabilities.
We receive daily plan liability values from a plan sponsor’s 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 out of balance, and to cost- and tax-efficiently rebalance plan assets.
Our process seeks to ensure that assets remain highly correlated with plan liabilities in aggregate, 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.