A growing number of employers are making plans to “de-risk” their pension plans. That’s jargon for reducing the financial risk posed to corporate balance sheets by pension plans – but if you have a defined benefit pension and you start hearing that term tossed around, pay careful attention. Less risk for employers can mean more risk for you.
A survey of 180 pension plan sponsors by Towers Watson, the benefits consulting firm, found that 75 percent have implemented or are planning de-risking maneuvers. Their motive is to reduce risk posed by unfunded pension liabilities, which must be carried on the books as debt and hurt a company’s ratings from debt agencies. De-risking strategies can vary from reducing exposure to risky equities in pension portfolios to offering lump sum buyouts to retirees and former workers. In some cases, plan sponsors have transferred pension obligations to private insurance companies by purchasing huge group annuities to pay out benefits.
“Plan sponsors are in a better position than they have been in a long time to think about a wide range of options,” says Matt Herrmann, head of the retirement risk-management group at consulting firm Towers Watson.
Learn more about the changes plan sponsors are making – and how they could affect you if you have a pension.