Explain the Risk When You De-Risk

Confero Spring 2016

Michelle Capezza, a Member of the Firm in the Employee Benefits and Health Care and Life Sciences practices, in the firm’s New York office, authored an article in Confero titled “Explain the Risk When You De-Risk.”

Following is an excerpt:

These “cash-out windows” or “risk transfers” have been part of a trend in de-risking techniques, as opposed to a full pension plan termination or freeze, as plan sponsors strive to find ways to reduce plan liabilities and/or overall costs associated with managing a pension plan program. With anticipated changes coming to the IRS’ mortality tables in 2017, as well as changes to the interest rate environment, it remains to be seen whether the lump sum cash-out windows will remain an attractive de-risking technique in prospective years. Nevertheless, for any plan sponsor currently contemplating this approach, or in the midst of rolling out this approach in 2016, it is important to be mindful that while the decision to amend a plan to provide for such a window or risk transfer mechanism is a business or settlor decision, the implementation of that decision is a fiduciary responsibility, and prudent participant communications regarding any window opportunity are critical.