De-Risking on the Horizon for Many Pension Plans


About 40% of senior financial executives, responding to a by Prudential Financial Inc, indicated that they will “seriously consider” transferring their company’s defined benefit plan risk to a third-party insurer in 2014 and 2015. Thirteen percent of survey respondents said they were “very likely” to purchase annuities for a portion of plan participants in the next two years. A small percentage of companies already completed transfers, according to the report, and another 20% “are waiting for more choices for risk transfer solutions to become available before they consider transferring their DB plan risk to a third party.” The survey analyzed responses from 181 senior financial executives of mid-sized and large companies with at least $250 million in defined benefit plan assets.

The survey found that many companies had already taken steps to reduce pension liabilities, such as freezing defined benefit plans and closing them to new entrants. Other popular methods for reducing pension liabilities reported in the survey include altering the benefit formula, increasing contributions to close the funding gap, and offering lump-sum distributions to participants. For example, GM's de-risking stragegy in 2012 combined the transfer of pension liabilities to a third-party annuity carrier with voluntary lump-sum payouts. As the companies surveyed de-emphasize defined benefit plans, they reported that they are enhancing defined contribution plans and other employee benefits in an effort to meet employees’ retirement needs.

 

--Vanessa Walts

Editor (Compensation Planning)

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