Russell White Paper Explains Pension Risk Transfer

According to the report, unlike liability-driven investment strategies, which assist in managing pension plan risk, transfer options can actually trim down the plan’s financial footprint on the corporation by shifting certain risks to plan participants or insurance companies. Risk transfer options vary, from the extreme option of full plan termination, to that of taking incremental steps of targeted lump sum options and annuity purchases. If plan termination is the ultimate goal, these smaller steps might simplify the termination process.  

The paper also notes that transferring risk can be expensive. “This is particularly true in the present economic environment of historically low interest rates and recent asset losses. In addition, a low funded status may prevent the plan from carrying out any of these solutions,” the authors wrote.