While combined pre‑funding and risk transfer actions have typically been economically positive, primarily due to the substantial increase in Pension Benefit Guaranty Corporation (PBGC) premiums and other defined benefit (DB) maintenance costs, many plan sponsors have stayed on the sidelines or managed pension risk tentatively, Mercer notes in a report.

However, Mercer says, pension sponsors are growing tired of market and regulatory volatility and are contemplating bolder action. Potential tax changes that will drive accelerated pre‑funding make a tipping point imminent. “We have seen many iterations of de‑risking actions over the past decade, and we see full plan terminations as the next wave, as many frozen plan sponsors convert from gradual steps to a Big Bang,” Mercer concludes.

The private defined benefit (DB) pension market of approximately $3 trillion dwarfs the total bulk buyouts executed to date, Mercer notes.

“Over the next five to 10 years, we expect to see a shakeout of the corporate pension market with substantial outflows to insurance and household balance sheets in the form of annuities written by insurers and participants taking their DB benefit as a cash option,” the report says. The company also anticipates a number of factors will align in 2017 to accelerate pension changes and upend the relative inertia of recent years.

Full Content: Plan Sponsor

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