Employers in many countries are concerned about managing pension risk. Some are now considering making lump sum offers to their terminated vested and retired participants. The “cashout” opportunity has gained attention recently due to General Motors’ decision to terminate $26 billion of its defined benefit (DB) pension liabilities by purchasing an annuity and offering lump sums to certain retirees. Cashouts for inactive participants hold promise for other plan sponsors, too – potentially allowing them to reduce their risk and administrative costs while fulfilling their retirement promises to plan participants.
“Many employers are considering the end game for their DB plans,” says Jonathan Barry, a Partner in Mercer’s Retirement, Risk & Finance consulting business. “For some organizations it will be a formal plan termination, while others may want to continue the plan in its current state, but actively manage the risks and reduce administrative costs. A cashout is potentially an attractive solution for settling a portion of plan liabilities with little disruption to the existing workforce.”
Learn more about how a term vested cashout works.
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For more information about preparing for the new legislation, visit http://www.inside-employers-mind.mercer.com/pension-risk-off-table.