Aug 07, 2012 --- A true
understanding of longevity risk is the needed catalyst for U.S. corporate
pension plans to more actively adopt de-risking strategies, according to Prudential. ---
In the U.S. corporate pensions market, there is broad
consensus that the risk position of corporate pension plans is not sustainable,
yet plan sponsors remain unaware of the impact of improved life expectancy on
their pension liabilities and focus almost exclusively on investment risk, the
Unprecedented pension deficits are front and center, and the
cash required to close them is straining free cash flow. Having endured
significant market downturns over the past several years, sponsors are now
keenly aware of how volatile that cash call can be. Transferring pension risk
through an insurance solution offers a sponsor the opportunity to remove these
risks from their balance sheet and focus on their core business.
The paper notes that longevity challenges are not limited to
corporations that sponsor defined benefit plans. As Baby Boomers approach
retirement, their ability to retire with security is also becoming the focus of
corporations that sponsor defined contribution plans as the main source of
retirement benefits. When uncertainty about the ability to make account
balances last throughout retirement causes these older employees to postpone
retiring, the normal course of promotion and hiring that keeps a corporate
culture vibrant and motivated is disrupted. Lifetime income solutions can
provide needed security to this generation of workers and support workforce
The report, “Longevity Risk and Insurance Solutions for U.S.
Corporate Pension Plans,” can be downloaded here.