Hibernation’s Wake-Up Call
Why annuitization can be the better approach to manage pension risk
A hibernation strategy is an important step in reducing the risk of managing a pension plan, but it still leaves a plan vulnerable to significant costs and risks that can reduce funded status and increase liabilities. Download the full paper here.
A pension plan is a non-core business with significant costs and risks. Over the last 19 years there have been nearly $800 billion in cash contributions in just the largest 100 U.S. pension plans.1 Yet, despite significant contributions and favorable equity market returns, funded status has not meaningfully recovered from the low of the financial crisis at the end of 2008. With COVID-19 casting uncertainty over global markets and communities, it's especially important for corporations to consider the often misunderstood characteristics of their pension plan.
This paper explores the substantial hidden costs and risks inherent in a pension plan with a focus on the cost and risk associated with credit defaults and downgrades.
1 Source: Milliman 100 Pension Funding Index; the 100 largest U.S. corporate pension plans, March 31, 2020.