The BCG Pension Insider

January 2024 – Volume 147, Edition 1

BCG Thought Leadership 2023 Roundup, Three Pension De-Risking Market Predictions for 2024 and A Tip of the Hat

Happy New Year! In this first featured article of 2024, we are taking a look back at the articles, surveys, spotlight series Q&A interviews, etc. that BCG Pension Risk Consultants I BCG Penbridge (“BCG”) authored and/or collaborated on in 2023 in its highly followed industry newsletter, The BCG Pension Insider. We also make three pension de-risking market predictions for 2024 and tip our hat and say thank you.

Three Pension De-Risking Market Predictions for 2024

Prediction #1: Earlier action for plan terminations and retiree lift-outs

• Plan administrator and insurer capacity (human capacity, not financial/capital) issues arose during 2023, leaving some plans unable to complete a plan termination on their desired timetable, and others not receiving the expected (insurer) interest, especially during Q4. As a result, we expect Q1 and Q2 of 2024 to be busier than usual, as plans that were unable to complete transactions at the end of 2023 seek to complete their plan terminations or retiree lift-outs at the earliest opportunity in 2024. Any plan sponsors just starting the annuity purchase process should be taking into account potential capacity issues at year-end. They are well advised to both take action a bit sooner in the year and build in some timing flexibility should unique circumstances arise to increase the likelihood of achieving the most optimal result. For plan terminations where illiquid alternative assets are part of the plan’s asset mix, even earlier action is needed to dispose of these assets at the best possible pricing levels and to avoid any unduly large haircuts.

Prediction #2: More lump sums

• Much like the 2023 plan year (when high interest rates from late 2022 created favorable lump sum opportunities), high interest rates from late in 2023 combined with a recent and significant drop in those interest rates should lead to many plans looking at the potential savings available by offering a lump sum window in 2024. Given this is not the first instance for this interest rate scenario, again there were similar conditions last year, many plans have already exhausted the savings available via lump sums. But those plans who have not yet offered such a lump sum window (or did so a few years back) may want to take advantage of the savings that can be achieved. Plan sponsors may also be looking into offering lump sums to retirees, or to older (age 59.5+) active employees, especially if interest rates continue to fall.

Prediction #3: Continuous monitoring, ongoing consulting becomes critical

• An important lesson learned from 2023 is just how quickly things can change. The high interest rates from October of 2022 had plummeted down early in 2023, only to rise beyond the previous year’s high by October 2023 – with a subsequent crash in interest rates over the past two months. The shifting interest rate (and annuity purchase) market from 2023 reminded us just how quickly and drastically things can change. Opportunities often present themselves to offer lump sums, borrow at low interest rates, terminate a plan in an attractive environment, lock in a favorable funded status with liability driven investing, or implement a buy-in solution that effectively locks in the cost at the beginning rather than the end of the plan termination process – but these opportunities are often short-lived and disappear quickly. Plan sponsors who routinely monitor their plan’s funded status (e.g., monthly) and have engaged pension de-risking consultants who bring an independent perspective ready to present them with opportunities will be able to take advantage of these opportunities, while those that take a more laissez-faire approach to their plan’s de-risking strategy may miss out on the chance to save (literally) millions of dollars.

Bottom line

• Pension de-risking will continue at a rapid pace in 2024, but a more strategic, consultative, fast-acting (prepare in advance) approach will need to be adopted by plan sponsors to successfully navigate market volatility, optimally reduce risk, achieve desired pricing and timing outcomes and save significant dollars.

A Tip of the Hat

Our efforts beginning in 2021 to author and publish our own BCG branded thought leadership to address topics relevant to the U.S. pension de-risking market, leveraging BCG’s leadership position to share its insights and perspectives, as well as those of other pension industry experts saw a “hockey stick” change in results this past year.

In 2023, the articles featured in this Roundup had 118,104 views and/or impressions in BCG’s newsletter that we distribute via email and on social media, an average of 9,000+ views and/or impressions per month. This compares to 37,700 views and/or impressions (an average of 3,400+ per month) in 2022 and 22,329 views and/or impressions (an average of 2,200+ per month) in 2021. How did we achieve these results? Two ways (1) the feedback on our featured articles has been exceptional regarding the consistent, collaborative, thoughtful approach and (2) our relationships with all of the players in the pension de-risking ecosystem have provided a powerful network effect.

For example, the industry leaders and companies we showcase in the BCG Spotlight Series Q&A’s are increasingly deciding to distribute the Q&A’s via their own LinkedIn post on their own individual and company LinkedIn pages. This network sharing has dramatically increased the “eyeballs” seeing BCG’s thought leadership each month. For this – we tip our hat and say thank you!

Our growing readership is comprised of plan sponsors, plan advisors, consulting actuaries, institutional investment consultants, asset managers, law firms, PRT insurers, reinsurers, as well as other pension industry participants. You can refer a friend or colleague to sign up to The BCG Pension Insider monthly newsletter by sending this link – bcgpension.com/sign-up

---

 

Thought Leadership The BCG Pension Insider Spotlight Series Webinars