FROZEN DEFINED BENEFIT PENSION PLANS ARE RISKY, EXPENSIVE AND BURDENSOME
An increasing number of companies have been attempting to reduce costs and mitigate risk by freezing their defined benefit (DB) plans. Ironically, the costs and risks associated with these frozen defined benefit plans continue to grow, draining valuable financial and human resources that might otherwise be directed to productive uses. Treading water is rarely an intelligent means to an end. And, in the case of frozen DB plans, such lack of action has been shown to significantly increase the exposure and costs resulting from:
While it is difficult to quantify the adverse impact of diverting time, energy and money to a frozen DB plan, most executives would agree that eliminating the distractions and unnecessary expenses associated with them will have an outsized positive affect.
Defined Benefit Plan Resolution Program (“DBPRP”), incorporating pension risk transfer and plan termination, eliminates all risk and ongoing expense for plan sponsors. For years, plan sponsors have been waiting for interest rates to go up, hoping that the cost of plan termination will then go down. Certainly, higher interest rates favorably impact the cost of benefits and therefore, the funded status of a plan. However, there are several other factors that impact the cost of benefits and the funded status of a plan, many that function in reverse correlation to interest rates, potentially wiping out the advantages of interest rate increases.
A COMPOUND QUESTION THAT PLAN SPONSORS SHOULD ASK:
Will the total reduction in cost due to possible interest rate increases be more or less than the total increase in cost due to:
Many practitioners argue that the totality of the various factors and assumptions, including interest rate movement, is a net neutral or corresponding offset. While that may well be the case, we believe it is important for plan sponsors to ask and frame the questions based on their facts, circumstances (including tolerance for risk, business conditions, etc.) and suitable assumptions. Only then can a realistic and business-smart pension risk transfer and exit strategy be intelligently developed, implemented and completed.
WHAT WE DO & HOW WE DO IT
The DBPRP is designed to relieve plan sponsors of the risk, expense and fiduciary responsibility associated with maintaining a DB plan, as quickly and efficiently as possible. There are numerous issues to consider when developing the optimum approach to DBPRP. Cherry Bekaert Benefits Consulting’s experienced team of client-centric pension and risk consultants work with you to identify and evaluate the facts, objectives and considerations that need to be fully addressed within the PRP pension de-risking process. We develop customized solutions to reduce and ultimately eliminate:
DO YOU HAVE AN EXIT STRATEGY?
Contact Kyle Frigon to learn more about CBBC’s DB Plan Resolution Program at 440.733.3256 or firstname.lastname@example.org.
Cherry Bekaert Benefits Consulting, LLC is a Chernoff Diamond Affiliate. Chernoff Diamond & Co., LLC is a Managing Member of Cherry Bekaert Benefits Consulting. Chernoff Diamond & Co., LLC offers Investment Advisory Services through M Holdings Securities, Inc., A Registered Broker/Dealer, Member FINRA/SIPC. Check the background of this Firm and/or investment professional on FINRA's BrokerCheck. Chernoff Diamond & Co., LLC is independently owned and operated. Chernoff Diamond & Co., LLC, is a member of M Financial Group. Please visit mfin.com/DisclosureStatement.htm for further details involving this relationship.
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