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Analysis

Pension Risk Transfers Target the Small Fry

Companies with underfunded pension plans try to contain costs by buying annuities for retirees receiving modest benefits.

Pension risk transfer activity has continued to grow this year, and these transactions could get an additional boost next year if the funded status of companies’ defined-benefit pension plans improves as a result of rising interest rates or strong equity markets.

Companies concerned about the risks entailed in their pension plans can transfer some of their obligations either by purchasing an annuity from an insurer to cover future payments to a group of retirees or by offering lump-sum buyouts to participants.

The effort to reduce plans’ risks is occurring at a time when many corporate pension plans are constrained by funding shortfalls. Benefits consultancy Mercer put the aggregate funded status of defined-benefit pension plans sponsored by S&P 1500 companies at 84 percent at the end of November, up slightly from 82 percent at the end of 2016.

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Susan Kelly

Susan Kelly

Susan Kelly is a business journalist who has written for Treasury & Risk, FierceCFO, Global Finance, Financial Week, Bridge News and The Bond Buyer.

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