DO GICS/BICS BELONG IN PENSION PLANS?
Given that GICs only marginally outperform Treasury securities, the investor can question whether the added risk of guaranteed investment contracts (in relation to riskless Treasury bonds) is commensurate with the extra return on GICs/BICs. Moreover, in concentrating only on the credit and market risks associated with guaranteed investment contracts, investors in these instruments may be overlooking the mortality risk. Mortality risk essentially measures the possibility that the annual long-term returns on a retirement portfolio will not be sufficient to provide retirement benefits that a participant in the pension plan will not outlive. In other words, a pension fund participant’s benefits may run out before his or her death. Financial experts feel that, even if a GIC is performing well, an investor under 40 years of age who has more than 20 percent of his/her pension fund portfolio in guaranteed investment contracts can probably afford to take greater levels of market risk (the risk
