The textbook says “older workforce means shorter duration liabilities and higher liquidity requirements” but what does duration of pension plan mean? Thanks.
Older workforce - means very soon employees will retire & become entitled for benefits.So plan has high liquidity requirement. It acts like a short duration liability. Pension assets should more of short duration bonds to give away difference in Pension assets vs Liabilities.
it means that since you have a relatively large and immediate liquidity requirement therefore going by the Asset-Liability Matching funda both your liability and asset duration should be low/shorter
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