Thirty-five percent of closed DB plans in North America are considering or are very likely to carry out a pension risk transfer transaction this year, according to a survey.
With more than US$2 trillion pension plan assets at stake, the Clear Path Analysis survey, which was sponsored by Prudential Financial, notes that this could be a major opportunity for third-party insurers as plans consider a range of buyout solutions.
With people living longer than ever and longevity risk a defining factor in decision-making, pension plan sponsors in the United Kingdom have been proponents of plan de-risking for several years.
“As the survey results show, there is an ongoing strategic change for closed defined benefit pension plans as they are beginning to take de-risking more seriously,” says Glenn O’Brien, managing director and head of U.S. distribution for pension risk transfer at Prudential. “We’re seeing companies look at ways of efficient risk reduction and transfer of liabilities as they consider their stock price and corporate cash flow.”
The effect of marketplace volatility continues to be a critical factor in de-risking decision-making. Respondents from the survey also indicated a significant shift in asset allocation, especially by those who are underfunded. In fact, in an increasing interest rate environment, 71% of respondents of public plans are looking at alternative assets in an effort to meet sponsor goals.
The survey includes insights from more than 60 North American pension plan managers and pension sponsor representatives.
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