Risks Plan Sponsors Face
The financial crisis of 2008-2009 had a profound impact on many defined benefit (DB) pension plan sponsors. For the second time in a decade, U.S. sponsors lost over 35% of their funded status in market downturns.
Average Funded Status of DB Plans in the Standard & Poor's 500
DB plan sponsors are challenged by a number of unpredictable drivers when managing their pension plans, including market-related risks and liability risks—all of which could contribute significantly to business risk over the long term.
Asset & Liability Mismatch
Other Demographic Factors
Other Benefit Election Risks
Sources of Risk and Value at Risk (VaR)
After experiencing unprecedented losses during the financial crisis, DB plan sponsors are now considering pension risk transfer as a means to:
- Achieve contribution certainty;
- Remove financial statement volatility;
- Allow greater focus on the firm's core business; and
- Ensure strategic flexibility.