Next, we translated the plan’s objectives into dollar terms. Beginning with the plan’s $100,000 liability, we assumed a liability return of 3.8% (based on our Investment Strategy Group’s capital market assumptions; see related details and assumptions at the end of the paper), giving us liability growth of $3,800 over one year. Combining that with the $350 in plan expenses (0.35%), we were left with the sum of $4,150, which represents the asset growth (net of investment expenses and fees) the plan will require to maintain its current surplus level.
We then divided that target dollar return ($4,150) by the plan’s total assets ($105,000), which gave us the rate of return required to keep up with the liability growth plus expenses: 3.95%, as shown in the dark blue bars in Figure 2 (Plan B). Of course, a less-well-funded plan would have a higher required rate of return (Plan A) and a better-funded plan (Plan C) would have a lower required rate of return.