DB Sponsors Seek to Transfer Liabilities

March 20, 2007 (PLANSPONSOR.com) - At a recent Watson Wyatt conference in the UK, one in four attendees from companies with defined benefit pension schemes said they would consider transferring their pension liabilities to insurance companies in the next five years if the cost reduces sufficiently.

Business Insurance reports that Andrew Reid, head of corporate consulting at Watson Wyatt, said increased capacity of the buy-out market has fueled speculation that companies will soon be transferring their DB schemes to insurers, but the cost of transferring liabilities is prohibitive. He explained that “insurance companies are subject to very strict reserving and capital requirements.”

Three-fourths of conference delegates said they will continue their pension schemes for the foreseeable future, according to Business Insurance. The same number reported they plan to implement measures to control DB liabilities such as breaking the link between benefits and salary or offering incentives for scheme participants to transfer out.

The subject of liability transfer was discussed by a panel of industry professionals at PLANSPONSOR’s 2006 DB Summit who predicted the emergence of a new entity that will not only take on DB plan administration, but might become the new sponsor of the plans (See Is Sponsorship Transfer Next Frozen DB Plan Solution? ). One panel member pointed out the UK is ahead of the mark with such entities.