Market perspectives from an Institutional leader

McDonagh

By Keith McDonagh
Head of the Institutional Solutions businesses for Massachusetts Mutual Life Insurance Co. (MassMutual).
Posted on Dec 1, 2022

We are often asked by clients and advisors, how should they be viewing their businesses in the context of today’s environment of rising rates, high inflation, and volatile markets. Our view is simple: Taking the long-term view is more important than ever.

With a stream of economic and market data arriving by the minute, it can be tempting to take short-term action without fully considering the potential long-term implications or opportunity costs. With a monetary tightening cycle underway and no specific termination date, it can be difficult to navigate and balance the near-term and long-term challenges you may face in managing your business. For example:

  • How can you fund employee benefits without certainty of future costs?
  • What are some options I should consider to bring stability and diversification to my investments?
  • Is now the right time to consider transferring pension risks?

What we do know

Operating your business within these markets can be daunting, as we stated in our recent quarterly investment update. For investors, the combination of equity and fixed income market pressure has accompanied the recent global market downturn. The Federal Reserve and global central banks’ hawkishness continues as government bond yields march higher.

                                      Source: Bloomberg as of 9/30/22.

While companies with strong balance sheets can weather this tumultuous period, it’s wise to be prepared for additional pockets of market weakness that may emerge.

Navigating business uncertainty: Solutions to consider

As we contemplate the current market environment, several areas rise to the top when it comes to positioning for business success.

Invest in human capital
Timing the market can be difficult. Maintaining a skilled and qualified team allows a business to be prepared for improved economic times. Investing in your key employees with an executive benefits package ensures you can attract, retain and reward the strongest talent. A nonqualified deferred compensation (NQDC) plan is one strong addition to a benefits package.

Offset benefits expenses
Employee benefits can be a meaningful cost due to the immense expense. Corporate-owned life insurance and bank-owned life insurance help fund these important talent management tools. The company pays the premium and owns the policy cash value which grows tax-deferred to help offset these benefit costs.

Consider enduring investment options
With equity markets volatile, stable value has become an increasingly attractive option for defined contribution plan (DC) investors seeking principal protection. While many DC plans rely on money market funds for liquidity, yield, and principal protection, stable value investment options can offer necessary “stability” in a rising interest rate environment.

Free up risk while maintaining market focus
Due to the uncertainty of the costs and risks associated with administering defined benefit plans, a growing number of institutions are looking to transfer all or a portion of their pension risk to a high quality insurer. A pension risk transfer removes this long-term liability from their balance sheet and reduce the volatility of the plan’s funded status, all while meeting commitments to their former employees.

Seek high quality fixed income solutions
During volatile markets, fixed income investments help diversity and preserve capital. Funding agreements and similar solutions offer a certain rate of return on a fixed principal. These investments can be used to meet a variety of business needs.

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.