Pension risk transfer (PRT) helps companies deliver on their promises. It can take several forms, all with the goal of ensuring the financial security of a company’s employees, past or present, who are enrolled in the plan. We’ll look at buyouts and buy-ins, plan terminations, and lift-outs, and why a company’s CFO might take one course or another. In all cases, the plan sponsor is paying to transfer to another entity the financial risk of meeting those pension promises to the plan participants. The plan sponsor is also removing or reducing the risks associated with funding and running the plans.
Pension deficits tended to get bigger in the low interest rate environments that have typified the last decade — or if the original plan didn’t sufficiently take into account the increasing longevity of the participants; the plan lacked the expertise or efficiency to manage the investments and administration; or the plan sponsor lacked the profits to sufficiently fund it. What is the best way for a company to transfer pension risk, and how does a CFO know which route to take? There is no one-size-fits-all answer