Many still don’t get pension transfer risk

The survey found that half of the traditional DB plans were open to new participants, while 36 percent were partially frozen and 14 percent were completely frozen. Plans with more than $250 million in assets were more likely to be open to new participants (69 percent) than smaller plans (47 percent).

Most of the plan sponsors surveyed, 55 percent, use a liability-driven investment strategy to address the risk of their DB plans, while others said they have considered or established risk options such as lump-sum payouts and group annuity buyouts.

The main reasons that sponsors are not interested in pension risk transfer products are lack of knowledge, use of another method to mitigate the risk, the purchasing costs of annuities and negative perceptions by stockholders, the survey found.

“There is a misconception that the cost of transferring the risk through an annuity would be prohibitive but recent analysis by Mercer found that it was slightly cheaper for a plan sponsor to purchase a buyout for the retiree portion of its plan than it was to keep it in-house,” said Salka. “We expect the growing impact of DB plans on balance sheets is going to drive more CFOs and others in finance to learn about and consider pension risk transfers in the future.”