What’s Your Pension Plan’s Economic Cost?

Hello I'm Russ Proctor a director for Pacific life's pension risk transfer solutions today I'll discuss why the economic cost of your pension plan is important to understand when evaluating the cost of a pension risk transfer solution such as an annuity buyout defined benefit plan sponsors today are interested in reducing the risk and cost.

Of their plans one way to accomplish this is to reduce the size of the plan liability relative to the company through a retiree buyout the analysis of the buyout decision should be based on the total economic cost of the liability the economic cost is the present value of future costs including both direct and indirect expenses plan sponsors are.

Often surprised that they may be able to transfer retiree liabilities to an insurance company for less than the total economic cost required to maintain those retiree liabilities when a plan sponsor completely understands the economic costs the numbers typically reveal the potential savings economic cost means more than just gap liability.

Costs great way to analyze this is to think of your economic costs in terms of a percentage of your accounting costs defined by gap for example let's start with your retiree participants liability costs and call that one hundred percent and then add on your other costs future administrative fees pension benefit guaranty corporation premiums can easily.

Add another 2% to your liability costs investment management adds five percent and investment to fall risk as another three percent so the total economic cost of carrying that liability might actually be a hundred and ten percent of the GAAP accounting liability costs for those retirees it's entirely possible that transferring the retiree liability.

To Pacific Life could cost less we often see buyout costs for retirees at approximately 105 percent of GAAP liability plan sponsors are realizing the wisdom of a total cost analysis the amount of liabilities transferred to insurance companies grew from four billion dollars in 2013 to more than 14 billion dollars transferred in 2015 plan.

Sponsors should talk to their pension consultants analyze the expense structure of their pension plan and consider the potential savings and remember that a Pacific life were ready to help you
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