A U.S. Treasury Department advisory committee is wondering whether the department could come up with new types of financial instruments that could help pension managers do a better job of handling plan obligations.

Thoughts about the idea of the Treasury Department developing new, pension-friendly products appear in the minutes of a recent meeting of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association (SIFMA), New York.

Committee members presented a talk about the funding problems that have been facing public and private defined benefit pension plans.

The Pension Protection Act of 2006 has encouraged corporations to shift plan assets into government bonds and high-rated corporate bonds, and away from stocks and stock funds, the committee members said.

Public plans face different regulations. They tend to hold less stock than corporate plans, but they have been increasing the share of their assets invested in stock in an effort to increase their relatively low funding levels, or ratios of assets to liabilities.

Today, defined benefit plans “face several risks that are difficult to hedge using pre-existing market instruments,” the committee members who made the presentation told other committee members.

The presenters suggested that the Treasury Department should consider introducing new instruments – such as ultra-long treasuries, wage inflation-linked treasuries, and health inflation-linked treasuries – that could plan managers match plan investments with plan liabilities.

But the presenters added that the Treasury Department must think carefully about dealer capacity and other practical constraints before going ahead and rolling out new types of products.

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