Pension Fund Liability Management Strategies

As a senior analyst at a pension fund, you are evaluating the impact of the plan's liabilities on its investment strategy. The fund has a defined benefit structure and substantial future payout obligations to retirees. Given the current interest rate environment, which has remained relatively low, the fund must assess its obligations against its investment returns. During your analysis, you discover that the pension fund's funding ratio has decreased over the past year. This situation raises concerns about the future utility of both equity and bond investments in meeting the fund's obligations.

Your manager has asked you to provide insights on how pension funds typically manage liabilities and the investment strategies employed to mitigate risks associated with low funding ratios.