Speakers featured on the Pension Plan De-Risking panel on the second day of the PLANSPONSOR National Conference all stressed there is no one-size-fits-all solution when it comes to de-risking defined benefit (DB) plans.
As explained by Rob Massa, director of retirement at Ascende, an EPIC company, “there are so many different variables to consider that it becomes difficult to give general advice about de-risking. It gets very detailed and complicated pretty much right from the start.”
Marty Menin, director of the retirement division at Pacific Life Insurance Company, agreed wholeheartedly with that assessment, nothing that his firm is one of just about a dozen or so insurers willing to take on pension risk from employers. He suggested that, while general advice is tough to give and there is “a ton of grey in this area,” one thing is absolutely clear.
“When it comes to pension plan de-risking, for example through an annuity buyout, failing to plan adequately is planning to fail,” he explained. “We’ve seen some transactions that have gone very smoothly because the plan sponsors had done the tough work well in advance to clean up their data and really understand the economic drivers that determine the pricing and mechanics of the buyout.”
Other plan sponsors clearly don’t plan as well, and so their de-risking efforts are much more frustrating, slow moving and inefficient. Both Menin and Massa urged plan sponsors thinking about de-risking to leverage the expert advisers and consultants who work on de-risking practically every day. Experts should be consulted early and often so that the plan can get itself into a position to de-risk when it wants to—when economic conditions are most favorable—as opposed to when it has to.
“The adviser will be able to work with you to set optimum lump-sum windows, for example, and to help you understand how offering lump sums in different ways can impact the way insurers view your assets and liabilities,” Menin said. “They’ll also be able to help you make sense of how the different de-risking maneuvers can fit together and work together over time, such as buy-outs, buy-ins, plan hibernation, liability driven investing, and all the points on the de-risking continuum.”
Karin Stouffer, senior vice president and relationship manager in the rollover solutions group at Millennium Trust Company, urged plan sponsors to consider early the role individual retirement account (IRA) custodians will likely plan as a DB plan moves down the de-risking spectrum—ultimately driving towards final plan termination via full annuitization.
“For us, as an IRA custodian, we have insights to offer throughout the process,” she said. “We can help you complete the lump sum window and assess what the terms of the window should be. We can help make sure you are finding and servicing the missing participants. Something else to add is that, through our experience assisting de-risking actions thus far, we know that strong client service from all the providers is one of the main keys to success.”
All three panelists concluded that the earlier a pension plan starts to thin about de-risking, the better.
“Because there are really one a dozen insurers that are actually active in this marketplace, that can cause some real capacity issues, especially when your plan assets and plan data are not in the best shape,” Menin concluded. “You will see that a dozen insurers can very quickly diminish to just two or three. You might even find just one insurer willing to take on your benefit liabilities—which obviously will not be conducive to getting a good deal.”