• Topics relevant to the pension de-risking industry

    Topics relevant to the pension de-risking industry

BCG Is a Thought Leader in the Pension De-Risking Industry

Rising Interest Rates

Rising Interest Rates

The first quarter of 2022 has seen a steep rise in interest rates. This increase in rates is across the board, with increases in short durations as well as long durations, treasuries as well as corporate bonds. While rising interest rates (aka discount rates) generally lead to lower defined benefit pension liabilities, the specific impact on pension liabilities is not necessarily that straightforward.

BCG Thought Leadership 2021 Roundup and A Look Ahead to How the Pension De-Risking Market is Evolving in 2022 and Beyond

BCG Thought Leadership 2021 Roundup and A Look Ahead to How the Pension De-Risking Market is Evolving in 2022 and Beyond

In our first newsletter featured article of 2022, we are taking a look back at the articles, surveys, spotlight Q&A interviews, etc. that BCG published in 2021. We also offer a look ahead to how we see the pension de-risking market evolving in 2022 and beyond.

Expanding the Pension De-Risking Toolkit — Longevity Risk Transfer

Expanding the Pension De-Risking Toolkit — Longevity Risk Transfer

Plan sponsors, with help from their actuaries, have a certain expectation as to how long their participants will live, and thus can calculate the present value of the participants’ annuity payments. But future mortality improvements are very difficult to predict. If future mortality improvement is higher than the plan expects, participants may outlive these expectations, increasing pension costs for plan sponsors. The risk that mortality assumptions don’t match actual participant experience is known as Longevity Risk. There is a solution available in the market that can transfer this risk to an insurer called Longevity Risk Transfer.

Addressing Alternative Assets in Defined Benefit Plan Terminations – Considerations for Plan Sponsors

Addressing Illiquid Assets

With larger and more complex defined benefit (DB) plan terminations on the rise and continued growth in terminations in the U.S. pension risk transfer (PRT) market expected over the next decade, DB plan sponsors need to consider best practices for disposing their plan’s illiquid, alternative assets (e.g., private equity, real estate, hedge fund investments), if any, in the most cost-effective and timely manner.

Is your Defined Benefit plan hard frozen? If so, chances are it has been hard frozen for some time. The question is: What are you waiting for?

Roughly 40% of all ERISA qualified defined benefit (DB) plans over $10M in assets are hard frozen, meaning there are no further benefit accruals. Many of these plans have been hard frozen for some time. In fact, 81% of hard frozen DB plans have been frozen for five years or more, and 54% have been frozen for 10 years or more. This paper raises two key questions for plan sponsors of hard frozen DB plans and identifies key considerations for plan sponsors whose DB plan has been frozen for an extended period of time.

Highlights from BCG’s 2021 Survey of Asset-In-Kind Practices of Annuity Providers

It is important for plan sponsors and their advisors to understand the practices of annuity providers related to asset-in kind (AIK) transfer arrangements for pension risk transfer annuity buyouts, so that they can prepare the asset portfolio and optimally carry out the transaction. Here, we present some highlights from BCG’s 2021 Survey of Asset-In-Kind Practices of Annuity Providers. Notably, 17 of the 18 currently active PRT annuity providers participated in the survey.

Pension Risk Transfer Annuity Placement Pricing is Better Than Ever – Will it Last?

BCG completed a total of 53 annuity placements in 2020, 42 plan terminations and 11 retiree annuity lift-outs totaling over $1 billion in annuity volume. The average selected annuity bid price / accounting PBO value was 101% for the 42 plan terminations and 94% for the 11 retiree annuity lift-outs. These percentages are not typos! This paper explores the current state of the US pension risk transfer market, specifically as it relates to three factors that are currently contributing to exceptional annuity pricing.

Liability Driven Investing When Plan Termination is the “Endgame” Objective

As a defined benefit (DB) plan sponsor, it is imperative you work with advisors who are aligned with your objectives and understand your goals and time horizon. It is also imperative to work with advisors who understand the important role liability driven investing (LDI) plays when plan termination is the endgame objective. This paper explores the importance of employing a custom liability benchmark , aka “Custom LDI,” based on a plan’s liability and how a customized LDI-PRT approach provides the most comprehensive solution.

Pension De-Risking – A Recommended First Step

Pension De-Risking – A Recommended First Step

This short paper helps defined benefit plan sponsors answer the question, “How do I get started down my plan’s de-risking path?”. An illustrative pension de-risking roadmap captures steps that can be taken from a pension liability perspective and from a pension asset perspective. Further discussion focuses on BCG’s recommended first action for any plan sponsor which is to evaluate their DB plan’s expenses, i.e., “What are my plan’s holding costs?”.

Major Insurers Flock to U.S. Pension Risk Transfer Market

Major Insurers Flock to U.S. Pension Risk Transfer Market

Prior to 2014, there were eight insurers in the U.S. pension risk transfer (PRT) market that were continuously active for many decades, with the longest tenured insurer being MetLife who entered the PRT business in 1921. That’s right -- 100 years ago! Following MetLife, while other companies entered and exited the market, seven insurers joined and remained active in the PRT market at different points over the ensuing 60+ years. Read this short paper to better understand how the increasing numbers of insurers in the PRT market is impacting pricing and market capacity.