What is the primary investment objective of a Defined Benefit Pension Plan (DBPP) fund?

The primary investment objective of a Defined Benefit Pension Plan (DBPP) fund is to ensure sufficient plan assets to meet pension liabilities. This is critical because a DBPP promises to pay specific benefits to retirees, which are determined by factors such as salary and years of service, regardless of the performance of the underlying investments. Therefore, the focus is not merely on achieving high asset returns or seeking growth through high-risk investments; rather, it is on maintaining the ability to fulfill these predetermined obligations.

In this context, the fund must carefully manage its investments to ensure that it has adequate assets to cover its future pension payouts. This involves strategic asset allocation, balancing the desire for returns with the necessity of preserving principal and maintaining liquidity to meet ongoing obligations. While liquidity for immediate withdrawals is important, it is secondary to the overarching goal of long-term sustainability in meeting the plan’s commitments. Thus, the emphasis lies in matching the profiles of assets with the timing and characteristics of the anticipated liabilities.