Mercer Outlines Strategy for Managing Pension Risk

March 6, 2012 ( - Whether their defined benefit plans are open or closed, many organizations are focused on de-risking while they evaluate alternatives for maintaining or terminating the plan.

In its latest Retirement, Risk & Finance Perspective, Mercer explores one solution for settling a portion of liabilities that may be financially attractive with little workforce disruption. In a discussion between two corporate executives, the article discusses the approach of managing risk by cashing out liabilities for deferred vested participants.  

Mercer says in some situations it may be financially attractive to purchase a single premium annuity from an insurance company rather than pay lump sums. This will hinge on the difference between annuity purchase rates and lump sum conversion rates in effect at the time of the transfer. Further, the annuity purchase is more suitable for retirees or for buying out accrued liabilities attributable to active employees.  

According to Mercer, the ultimate risk reduction is the formal termination of a pension plan, but there are a variety of reasons organizations have maintained their plans.  

The Perspective article is available at