The first rule of financial prudence is that assets and liabilities should be matched. Unfortunately, during good times this rule tends to be forgotten. There’s normally a profit to be made by borrowing in a low-yielding currency and lending in another at a higher rate; or by borrowing short and lending long. The mismatching of assets and liabilities lies at the heart of the current credit crisis. In recent months, many have discovered the perils involved in the pursuit of such easy gains. Only the pension world remains oblivious.

The value of pension liabilities have the characteristics of a fixed-income debt. The sponsor of a defined benefit plan is obliged to pay out a (more or less known) sum at a certain date in the future. The present value of that liability can be discounted back to the present and matched by purchasing a fixed-income security. This is all standard finance theory. But those who run corporate pensions prefer to ignore these findings.