A low number of retired lives usually indicates an increased ability to take risk. Both of the other answers work to decrease pension fund risk tolerance. Pension fund risk tolerance decreases when plan assets and plan sponsor operating characteristics have high correlation. The ability for the plan sponsor to make contributions is decreased at the most inopportune time when plan assets and operating characteristics are highly correlated. Hence, risk tolerance decreases in a highly correlated environment. Plans that offer early retirement or lump-sum payments essentially decrease the time horizon of the retirement liability and increase the liquidity requirements of the plan, so the ability to tolerate risk is decreased. |
