Success Outcome


A plan sponsor to a 45-year-old defined benefit pension plan was concerned about the high ratio of retirees and vested terminated participants to active participants. The corporation had gone through many changes in those 45 years, and was now considerably smaller through lay-offs and early retirement incentives. Throughout this transition, the asset allocation of 80% equities had not changed. With a smaller company supporting a larger pension plan, the sponsor had become less tolerant of the high pension asset swings that accompany equity investing.

The plan sponsor solicited ideas from the investment advisor and the actuaries at SilverStone Group. The investment advisor had recommended a lesser mix of equities and liability-driven investing to more closely track fluctuations in the liabilities. But this did not address the large size of the pension plan relative to the corporation's other liabilities.

SilverStone Group recommended a partial risk transfer through the purchase of a group annuity. Analysis and forecasting indicated that the appropriate group to transfer was the current retirees plus all terminated participants over the age of 60. By including some of the vested terminated participants, the case was large enough to receive competitive bids from several insurance carriers. Additional vested terminated participants would have been included, but there was concern that some may be rehired and eligible for additional benefit.

Plan assets were allocated to allow for sufficient liquidity to make the purchase and isolate the plan from any unexpected market downturns prior to the purchase. SilverStone Group reviewed potential carriers to ensure they met the "Safest Annuity Available" test. Interest rates were monitored until the purchase price decreased enough to match the amount the company was willing to spend.

After the group annuity purchase, the company was left with a viable pension plan of an acceptable size. The plan sponsor was relieved to have transferred the investment and longevity risks away from the plan for that retiree and near-retiree block. The cost to administer the plan was also reduced since the insurance carrier will now pay the monthly retiree benefits and handle questions and changes for those participants.