Pension Risk Transfer: A Growing Solution for Employers

With the surge in high-profile pension buy-out transactions, employers are increasingly considering pension risk transfer as a solution for de-risking their plans. Prudential Retirement, a business unit of Prudential Financial, Inc., has released a white paper, "Preparing for Pension Risk Transfer," which outlines the process and benefits of pension risk transfer. According to the paper, the U.S. market has seen buy-out transactions totaling over $49 billion since 2012, with companies such as General Motors, Verizon, and Bristol-Myers Squibb participating.

Key Takeaways:

• The U.S. market has seen buy-out transactions totaling over $49 billion since 2012, with companies such as General Motors, Verizon, Motorola, and Bristol-Myers Squibb participating.
• A 2014 Prudential survey found that 48 percent of senior financial executives indicated that they are likely to transfer pension plan risk to a third-party insurer within the next two years.
• There are three basic types of buy-out transactions: full buy-out, partial buy-out with lift-out, and partial buy-out with spin-off and termination.
• Plan sponsors can begin the process of transacting by identifying an internal team to oversee the process, selecting outside advisors, defining transaction objectives, and organizing plan data.
• The pension risk transfer process involves four phases: preparation, feasibility, structure and refinement, and execution.
• Executing a buy-out transaction can significantly reduce or eliminate future pension plan risk for plan sponsors.
• Prudential Retirement offers a range of pension risk transfer solutions, including Traditional Buy-out, Portfolio Protected Buy-out, and Portfolio Protected Buy-in.
• Prudential Retirement has $365.3 billion in retirement account values as of March 31, 2015, and helps meet the needs of 4.0 million participants and annuitants.

Statistics:

• Over $49 billion in buy-out transactions have occurred since 2012.
• 48 percent of senior financial executives are likely to transfer pension plan risk to a third-party insurer within the next two years (2014 Prudential survey).
• $365.3 billion in retirement account values as of March 31, 2015 (Prudential Retirement).
• 4.0 million participants and annuitants served by Prudential Retirement as of March 31, 2015 (Prudential Retirement).

Sources:

• "Preparing for Pension Risk Transfer," white paper by Prudential Retirement.
• 2014 Prudential survey.
• Prudential Retirement press release.
• Prudential Financial, Inc. (NYSE:PRU) SEC filings.