Unlocking Shareholder Value Through Pension Risk Transfers - Executive Summary

A majority of large US corporates are on an exit trajectory from the business of providing and investing for defined benefit (DB) pension plans. Many sponsors are thinking carefully about what the eventual ‘endgame’ will look like for their plan(s).

Some are aiming for a fully funded plan runoff over the long-term using a low volatility investment approach. Many, however, are expressing interest in more fundamental strategies to shrink liabilities through a combination of voluntary lump sum payments to plan participants and full or partial termination by purchasing annuities.

The potential flows involved are very large and are receiving a lot of attention from banks, insurers and asset managers as these flows represent both an opportunity and a threat to current business models. We estimate that overall single employer-sponsored corporate DB pension plan liabilities total in the region of $2 TN on a US GAAP basis.

In this executive summary, we aim to provide the reader with a brief understanding of how large corporations can create shareholder value by transferring defined benefit pension risk off of their balance sheets, given the right conditions. Specifically, we:

  • Provide an overview of the current US defined benefit pension landscape for large corporations
  • Describe a technical framework for determining the economic benefit to shareholders of transferring pension risk off the balance sheet
  • Lay out a practical roadmap for derisking pension plans in scenarios where it makes economic sense to do so

Unlocking Shareholder Value Through Pension Risk Transfers - Executive Summary