Risk transfer potholes: How to avoid them or brace for impact

Pension risk transfer has evolved into a mainstream tool for defined benefit (DB) plan management. While some transactions offer clear benefits, others may involve trade-offs that are not immediately apparent.

This paper highlights potential challenges and red flags sponsors may encounter, including executing risk transfer while underfunded, variability in plan termination costs, interest rate timing for lump sums, and implications for funding, accounting, and investment strategy.

As more complex situations emerge, understanding these dynamics can help sponsors evaluate how risk transfer fits within their long-term plan objectives.