Glossary
Pension Risk Transfer
A pension risk transfer is a strategy where a company shifts the responsibility of paying employee pension benefits to a third party, typically an insurance company. This is often done through a lump-sum buyout or by purchasing a group annuity, helping the company reduce long-term financial and administrative risks.
Why do companies do pension risk transfers?
To reduce the financial burden, volatility, and regulatory complexity of managing pension plans, especially as workforce demographics shift and interest rates change.
How does a pension risk transfer work?
The company either offers retirees or vested employees a lump-sum payout or transfers future payment responsibility to an insurer through a group annuity.
Do pensioners lose benefits in a risk transfer?
No. Benefits are typically preserved. When transferred to an insurance company, retirees receive guaranteed payments, similar to the original pension.
Is my money safe after a pension risk transfer?
Yes, generally. Insurers are regulated and must meet strict financial standards. Payments may also be protected by state guaranty associations if the insurer fails.
Who regulates pension risk transfers?
The Department of Labor oversees the fiduciary process for plan sponsors, while state insurance regulators oversee insurers that take on the pension obligations.
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