Risk transfer strategies can help reduce both risk and expenses for DB sponsors. The most common forms of risk transfer are lump-sum cash-outs to terminated vested (TV) participants; and annuity purchases for retirees. Executing a risk transfer can lead to significant changes in the plan’s funded status, liability duration and hedge ratio. DB plan sponsors ought to consider the investment implications of pursuing a risk transfer, both in the short- and long-term.
This paper addresses some of the matters sponsors must consider with respect to asset strategy while doing a pension risk transfer.