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Plan Sponsors Consider Customized Solutions to Derisk Their Plans

Amid market volatility and a desire to limit the costs and downside risks associated with their pension plans, sponsors are reconsidering their approaches and talking with insurers about options they may not have previously considered.

“Conventional wisdom for a long time was that if you were going to derisk, the lowest-cost way of doing that would be to shift equity to fixed income,” said Sean Brennan, senior vice president and head of pension risk transfer at Athene. “If you consider lump sums and buyouts like a form of fixed income, what many plan sponsors have seen over the last several years is [that,] actually, buyouts can be a more cost-effective tool for managing risk than traditional fixed-income investments.”

Since most plan sponsors have already taken the first step of offering lump sums to terminated, vested participants, they now need to consider more complex solutions and new ways of completing transactions. For example, rather than simply looking at a plan’s funded status, plan sponsors are now also considering their objectives and constraints — including costs, risks and regulatory concerns — when it comes to their plan liabilities, he said.

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