October 26, 2012
--- For today’s frozen defined benefit (DB) plans, the
question is not if they will settle—it’s more about “how” or “when.” ---
think 2012 is sort of the beginning of a tipping point [for the settlement
market],” Jay Dinunzio, senior consultant at Dietrich & Associates, said
during a webinar titled “The Next Big Thing in the Pension Market—Liability
“how” of a pension settlement—discharging all or a portion of an employer’s
pension benefit obligation—is the decision to offer participants either a lump
sum they elect to receive, or an annuity. The “when” has become complex because
of factors including the low interest rate environment and many underfunded
plans. In order to settle obligations, plan sponsors must also recognize the
significant added costs associated with it, Dinunzio said.
decision to settle is a deviation of “business as usual,” so plan sponsors must
overcome the psychological hurdle of breaking out of their routine, he added.
summer, General Motors Co. announced it would offer lump-sum payments to select
retirees and monthly pension payments to others administered by The Prudential
Insurance Company of America. The retirement plan actions resulted in an
expected $26 billion reduction of G.M.’s U.S. salaried pension obligation, the
largest insured annuity settlement in U.S history (see “GM Transfers Some
Pension Risk”). Trailing behind it is Verizon Communications Inc.,
which announced in October it had signed a partial pension buyout deal to
transfer approximately $7.5 billion of the Verizon Management Pension Plan
obligations to Prudential (see “Verizon Signs
Partial Pension Buyout Deal”).