See how a defined benefit (DB) plan risk analysis could help identify potential challenges.
Strong funding ratios present new challenges for plan sponsors, including managing risks to protect the hard-earned gains of their plans. A comprehensive risk analysis can help plan sponsors reevaluate risk mitigation options—from adjusting liability-driven investing (LDI) strategies to transferring pension risk or terminating. This example highlights how a risk analysis helped uncover potential cost-saving opportunities while managing risk.
Global leader in specialty materials
$95 million in total defined benefit plan assets
Three total plans: All are closed to new hires with accruals frozen to existing participants in two of the plans
Approximately 800 participants including active, term-vested, and retirees
All three plans are at least 107% funded
Principal® helped the plan sponsor conduct a risk analysis across all three pension plans to establish a holistic view of potential risks. During a 30-minute consultation, the analysis was presented to the plan sponsor and identified opportunities to help improve plan management and establish short-term and long-term strategies.
- The plan sponsor could benefit from a better process for measuring how close their plans are to termination.
-
One of the plans may be sufficient to terminate and has mostly de-risked investments, so it's important to have a termination strategy across all plans.
-
Implementing such a strategy could benefit the plan sponsor through:
-
Regular and timely updates of the cash amount needed to terminate the plan and pay participants' lump sums (or purchase an annuity).
-
Pre-determined asset allocation changes triggered by funded status changes and the timeline to termination. These changes could increase the use of investment instruments designed to mirror pension liabilities.
-
-
- Both on an annual basis and upon eventual plan termination, plan administration (benefit calculations in particular) can be a major source of fees and internal human resources effort. This set of plans requires 25-30 such calculations each year (and will require over 250 if the plans were liquidated). The sponsor could have unnecessary expenses tied to these activities.
-
The plan sponsor could benefit from presenting their retirement benefits in a more integrated fashion. The defined benefit plan administrator is different from the defined contribution plan administrator, and the participants lack resources to access both sources of retirement income. Creating a platform for participants to access all the company's retirement benefits in one place could drive a better experience and a greater appreciation and understanding of these benefits.
Do you fully understand the risks in your organization’s pension plan management? An analysis—which includes a 30-minute consultation—can help identify potential cost-saving opportunities and improve efficiency.
