2012-05-31-奥纬咨询-Unlocking_Shareholder_Value_Through_Pension_Risk_Transfers_-_Executive_Summary_6页_977kb

Industry Report Analysis Summary

Financial Services
Unlocking Shareholder Value Through Pension Risk Transfers

Executive Summary

• Large corporations can enhance shareholder value by transferring defined benefit (DB) pension risk, contingent on favorable conditions.
• The report provides an overview of the current US DB pension landscape, a technical framework for evaluating the economic benefit of risk transfers, and a roadmap for derisking pension plans.

Key Points:

1. US Pension Landscape:

   • A majority of large US corporates are exiting the DB pension business.
   • S&P 500 companies: One-third have no DB liabilities. Among those with plans, 60% have closed or frozen them.
   • Approximately $2 trillion in total corporate DB pension liabilities (GAAP basis).

2. DB Plan Categories:

   • Open: New benefits accrue for active employees.
   • Closed/Frozen: No further accrual; sponsors are derisking.

3. Holistic Balance Sheet View:

   • Pension deficits should be viewed as corporate debt.
   • Risk transfer makes sense if the cost of financial market borrowing (after-tax) is less than the risk-free rate.
   • Framework categorizes companies into three types based on borrowing costs/tax efficiency:
     • Category A: Low risk-free rates allow immediate funding and risk transfer.
     • Category B: Spreads favor maintaining deficits; focus on alternative investment strategies.
     • Category C: High borrowing costs; limited derisking options.

4. Economic Cost Calculation:

   • Accounting under GAAP does not fully capture the economic cost. Companies must adjust for factors like operating expenses, PBGC premiums, and discount rates.

5. Risk Transfer Process:

   • Primarily involves lump sum payments to terminated vested plan participants and annuitization of remaining retiree liabilities.
   • Annuities are often attractive and economically value-adding, though accounting treatment is negative but market understanding is improving.
   • Insurance capacity exists for large-scale transfers.

Conclusion

• Companies should:
  • Conduct a holistic balance sheet analysis.
  • Understand lump sum and annuitization dynamics.
  • Develop an execution strategy for successful risk transfer.
• Shareholder value can be significantly enhanced through structured risk transfer, especially for Category A companies.