Liability Driven Investment - LDI


DEFINITION of 'Liability Driven Investment - LDI'

A form of investing in which the main goal is to gain sufficient assets to meet all liabilities, both current and future. This form of investing is most prominent with defined-benefit pension plans, whose liabilities can often reach into the billions of dollars for the largest of plans.

BREAKING DOWN 'Liability Driven Investment - LDI'

LDIs are most prominent in the funding schemes of defined-benefit pension plans, which are designed to provide a predetermined pension upon retirement. The liabilities in these funds arise as a result of the "guaranteed" pensions they are supposed to provide to members upon retirement.

In the early 2000s, the entire structure of the defined-benefit scheme was criticized as being faulty. The liabilities that sponsoring companies and plan members must pay for has increased substantially, which has caused some pension plans to reduce benefits to retired members, or even to shut down entirely.

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    A company's legal debts or obligations that arise during the ...
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  1. Who bears the investment risk in 401(k) plans?

    Who actually bears the investment risk in a pension plan depends on the type of pension plan that is employed. In a broad ... Read Full Answer >>
  2. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>
  3. Can catch-up contributions be matched?

    Depending on the terms of your plan, catch-up contributions you make to 401(k)s or other qualified retirement savings plans ... Read Full Answer >>
  4. Are catch-up contributions included in actual deferral percentage (ADP) testing?

    Though the Internal Revenue Service (IRS) carefully scrutinizes the contributions of highly compensated employees (HCEs) ... Read Full Answer >>
  5. Can a 401(k) be used for a house down payment?

    A 401(k) retirement plan can be tapped to raise a down payment for a house. You can either borrow money or make a withdrawal ... Read Full Answer >>
  6. How old do I have to be to make catch-up contributions?

    Most retirement plans such as 401(k), 403(b), individual retirement accounts (IRAs) and Roth IRAs allow for catch-up contributions ... Read Full Answer >>

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