Abstract
Corporations with pension plans can be viewed as owning life insurance companies that offer lifetime annuities to plan participants. De-risking these pension plans has become an increasingly important area of concern for chief financial officers as they manage their corporate risks. While annuitization is often identified as a primary means for de-risking pension plans, there are actually many options available. In this case study, the authors demonstrate the range of potential costs associated with managing a pension plan before and after implementing various risk mitigation solutions. Each de-risking solution will have a different risk/return profile. Thus it is critically important for pension plan sponsors to understand the specific risks associated with their pension plans and each solution before making a decision on how to de-risk. In order to make the most cost-effective decision, the risk/return profile needs to be considered in the context of the corporation’s level of risk tolerance. If annuitization is selected as the optimal solution, obtaining an independent actuarial appraisal can assist the corporation in securing the most cost-efficient annuity.
- © 2014 Pageant Media Ltd
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