The WSJ today published an article, titled “Your Pension Check May Soon Be Coming From An Insurance Company”. The article highlights the growing trend in the off-loading of pension liabilities to insurance companies. These pension-risk transfer efforts have been going on for some time, with Prudential Insurance Company being a leader in this space.
As the article highlights, private pension funds are happy to off-load these liabilities, as the volatility associated with funding plans can play havoc with income statements through annual contribution expense. However, the transfer of the liability is no free lunch, and the cost to transact often results in a sizeable premium being paid by the company.
According to Ron Ryan, risk is best defined as the “uncertainty” of meeting the client’s objective. For a plan sponsor, the pension plan’s objective should be to fund liabilities in a cost effective manner such that contribution costs remain low and stable. Since the pension objective is a cost objective, then solving for cost while matching the liability payment schedule would be the ideal way to de-risk a pension plan.
KCS, through its affiliation with Ryan ALM, can assist you in de-risking your pension plan without having to transfer assets and cash to an insurance company at a significant premium to the present value of that liability (usually retired lives). By retaining the assets and establishing a cash-matching strategy, we believe that a 30% savings can be achieved versus standard de-risking approaches.
Please don’t hesitate to reach out to us to learn more about the Ryan ALM / KCS pension de-risking strategy.