Abstract
The approach to alternatives adopted by defined-benefit (DB) plans is not based on a simple formula that can automatically be deployed in defined-contribution (DC) plans, they caution. In an exclusive interview to discuss their Journal of Retirement article, Stephen Sexauer and Laurence Siegel outline the conditions under which alternatives can sensibly be used as a component of DC plans. DC plans are not DB plans. A DC plan must meet its beneficiaries’ liquidity needs, not the sponsor’s. Because a DC participant can tolerate only a small amount of illiquidity in pursuit of a higher return, the plan must limit its exposure to alternative investments. Read the report for the other Practical Applications .
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