Considerations for Adjusting Pension Fund Asset Allocation

XYZ Pension Fund is a defined benefit plan with a focus on ensuring long-term financial stability for its retirees. The fund has recently undergone a review of its investment strategy to align with the changing demographics of its members, who are aging and drawing benefits more rapidly than before. The Board of Trustees is considering shifting a portion of its equity exposure into income-generating assets to better match its liability structure while aiming for an optimal risk-return profile.

Discuss the key considerations the Board of Trustees should evaluate when adjusting the asset allocation, particularly focusing on risk management, liquidity requirements, and the plan's funding status. Additionally, outline how these changes might impact the investment policy statement (IPS) of the pension fund.