Managing the Risks of Defined Benefit Plans
We help our clients navigate and simplify complex de-risking issues while working collaboratively with investment advisors to execute the overall strategy.
When considering a de-risking path, it is important to consider all strategies in order to select the one that best fits the plan.
Pension De-Risking Strategies
Plan Design Changes
- Reduce or change benefit accruals
- Close plan to new entrants
- Freeze future benefit accruals
- Adopt a hybrid plan design, such as a cash balance or pension equity plan
- Adopt a variable benefit plan design
- Consider adjustments to 401(k) or 403(b) plans to manage total retirement benefit
Borrow-to-Fund Strategy
- Borrow lump sum amount to fund unfunded vested benefits
Dynamic Portfolio Strategies—Creating the Glide Path
- Reduces volatility in funded status, contribution, and accounting expense as funded status increases
- LDI (liability driven investing)
Lump Sum Windows
- One-time payment of participant’s entire pension benefit
- Targets terminated participants with future benefits payable
- PBGC premium savings
Annuity Purchase
- Transfer liabilities and assets for a specified group of pension plan participants to an insurance company through an annuity contract
Plan Termination
All risks transferred for entire plan:
- Regulatory risk
- Operational risk
- Demographic risk
- Spread risk
- Interest rate risk
- Market risk
Typically takes 12 months
