Preparing for a Pension Risk Transfer

December 17, 2012 ( – The preparation for a pension risk transfer includes many steps.

By Rebecca Moore | December 17, 2012
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For the last several years, pension risk strategies have focused on retaining the risk via plan redesign or a dynamic investment policy, but now defined benefit plan sponsors are focused on transferring the risk, noted Sean Brennan, principal, senior consultant with Mercer Financial Strategy Group, during a webcast sponsored by Mercer. Even if plan sponsors think a risk transfer is in order later down the road, actions can be taken now to prepare and ensure that the cost will be minimal, he said.  

Plan sponsors must identify their risk management/transfer options and engage with insurers to understand pricing and capital commitment. Brennan suggested sponsors develop an in-house cost/economic liability study, identify the appropriate discount rate for calculation of pension liabilities as well as the most recent mortality assumptions.   

Sponsors should engage with insurers to ensure capacity and willingness to take on plan liabilities, according to Scott Gaul, SVP, Prudential’s Pension & Structured Solutions. He said capacity for these types of transactions is high. Not only jumbo plans, but smaller plans need solutions like this, and the capacity exists for all ends of the market.