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May 10, 2013 at 10:55 AM
Last year, two major corporations – GM and Verizon – announced plans to shift their pension liabilities to annuities administered by Prudential. The moves garnered national headlines and some measure of controversy. Verizon retirees filed a lawsuit in an attempt to halt the transfer.
However, GM and Verizon are far from the only corporations that have sought to lessen the financial strain of defined benefit (DB) or pension plans on their balance sheets. According to a 2012 report, “Unlocking Shareholder Value Through Pension Risk Transfers,” by management consulting firm Oliver Wyman, overall single employer-sponsored corporate DB pension plan liabilities total roughly $2 trillion on a U.S. GAAP basis.
Oliver Wyman’s sister company, Mercer, recently launched a U.S. Pension Buyout Index, to help plan sponsors evaluate how much it would cost to have an insurer take over their retiree liabilities in a DB plan. It estimates that of domestic plan sponsors that have a DB plan, 60 percent have either closed or frozen their plans. Therefore, “many sponsors are thinking carefully about what their eventual ‘endgame’ will look like for their plan(s),” speculates the Oliver Wyman report.
But what is the endgame for the retiree who is offered the choice of the buyout or staying with the pension? That’s a dilemma an increasing number of financial planners may have to answer for clients in the future.
One advisor, Jill Pollard, pictured, founder and president of Tailored Financial Services in Lupton, Mich., has been dealing with that question
probably more than most in her profession of late. She’s located about two hours north of Detroit and estimates about half of her clients and prospects work or have worked in the auto industry. In the spring, she launched a website, www.thepensionbuyout.com, to dispense information a retiree should consider when offered a pension buyout. Though she doesn’t have an estimate of how many have visited the site, Pollard says she has booked about a dozen meetings with prospects who have visited the website.
Major life decision
For many, it’s a major life decision and one they never thought they would have to make. After all, having a pension was supposed to take care of a worker’s retirement finances. Now, they are not so sure.
“When people get this huge pension buyout check, they have no idea what to do with it,” Pollard says. “Should they take it? Shouldn’t they take it? It’s a big decision for them.”
