A Defined Benefit Plan can pose a serious risk to an organization’s financial profile, especially in volatile markets with low interest rates. There are multiple de-risking strategies that can be employed to decrease risk and improve an organization’s overall financial profile. Taking de-risking steps now can help make plan termination an option in the future for your organization.
Consider these 5 strategies before deciding to terminate your plan:
1. A Plan soft freeze -
Some soft freeze strategies can decrease future costs by limiting participation, freezing service or limiting future pay increases among other options
2. A Plan hard freeze -
Hard freeze strategies can also decrease costs by freezing or changing benefit accruals for active employees, or eliminating future increases to retirees
3. Annuity buy-in -
Purchasing annuities from insurance companies as plan assets may provide additional cash flow into the plan
4. Annuity buy out-
Purchasing annuities from insurance companies for all or some participants; the insurance company then assumes all future payments, risks and expenses
5. Lump sum payouts- Utilize different payout strategies to improve plan health; lump sums can be offered to all or select participants to reduce overall financial risk.
Terminating your plan will remove long-term risk and improve your organization’s economic profile. However, developing and enacting a strategy to improve the health of your organization and retirement plan will be essential to reducing workload and risk prior to plan termination.
If you have questions regarding Defined Benefit Plans or de-risking strategies, feel free to contact Linda Lauer, Employee Benefit Plan Specialist, at firstname.lastname@example.org or 901.685.5575.