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Should You Hedge Currency Risk in a Pension Plan?

"Plan sponsors should be asking the following questions as they develop a risk budgeting process: What is our plan's currency exposure? ... How much of that exposure should we hedge? ... How should a currency-hedging program be implemented? ... How much liquidity is necessary to maintain a hedge? ... Should a pension plan sponsor actively or passively manage currency hedges? ... How should behavioral challenges be addressed?"

The Challenge of Transferring Pension Risk

"Does GM's transaction open the door to more big pension risk transfer deals? It is already happening. Verizon has gone ahead [with announcing] a similar transaction, about one-third the size of what [GM] did. And CFOs and treasurers are looking at [GM's] transaction to see if it could make sense for them. But it will be different for each company."

Verizon Sued Over $5.9 Billion Pension Risk Transfer Deal with Prudential

"[I]nsurance company Prudential, which is managing the pensions, is not named as a defendant in the Verizon lawsuit. Plaintiffs are suing Verizon and State Street Global Advisors, which served as 'the independent fiduciary' in putting the deal together, according to the suit." [Dempsey v. Verizon Comm. Inc., No. 24-10004 (S.D.N.Y. complaint filed Dec. 30, 2024)]

Risk Transfers Increasingly Used for Modest Pension Payouts

"[C]ash-strapped companies are focusing their efforts where they have the most impact: purchasing annuities in order to transfer to an insurer the companies' obligations to retirees who will receive modest benefits.... Through the first three quarters of this year, pension plans purchased $12 billion of annuities, but [one consultant] expects the total for the year to come in around $20 billion."

Reducing Pension Risk with Buy-Ins

"[It's] a good idea for plan sponsors to think of de-risking as a series of steps, with a spectrum of possible choices at each step, rather than as a 'once-and-done' transaction. At one end of the spectrum is a liability-driven investment strategy in which asset allocations are generally intended to match plan liabilities. On the other end is the pension buy-out, through which the liabilities and assets are transferred to an insurer. A pension buy-in, which shares aspects of both, lies between the two on the spectrum.... Buy-ins vs. Buy-outs ... How a Buy-in Works ... Accounting and Funding Status Implications ... Buy-in Decision-Making ... Buy-in Checklist."

New Rules for Pension Risk Transfers?

"According to a Towers Watson survey of executives at 180 companies, 75% say they have a journey plan -- a program for de-risking the pension plan that includes triggers for making future changes -- or are planning one. And half of the executives surveyed said their company's journey plan includes unloading some of its pension obligations."

More Pension De-Risking Ahead

"With interest rates still low by historical standards, companies may be reluctant to undertake transactions for fear rates will soon move higher, leaving them having priced near the low in rates. But the low rates also mean it's cheap to borrow, and borrowing to finance a de-risking may alleviate companies' concerns about the timing of a transaction[.]"

Overcome a De-Risking Pitfall

"[Y]ou may have researched your options and decided on the right program for your company under the assumption that communication channels will be reasonably clear. Yet what you don't know about your past employees may have a substantial and costly impact on your efforts.... [T]he issue presents a very real threat to de-risking strategies such as lump-sum distributions or annuity buyouts."

Pension De-Risking Glide Paths, Five Years On

"Today many pension plans -- especially frozen plans -- use glide paths to define how their asset allocation should change as their funded status moves over time.... [An] endpoint must be defined, establishing the funded status at which the glide path will stop and what the asset allocation should look like at that time.... Another basic decision in glide path design lies in the question of whether asset allocation shifts are a one-way street.... Glide paths also vary in their complexity."

IRS May Have Big ACA Employer Tax Woes

"[The National Taxpayer Advocate's 2016 Report to Congress said that] the IRS was not equipped to test the accuracy of ACA health coverage information reporting data before the 2016 filing season, for the 2015 coverage year. The IRS expected to receive just 77 million 1095-C forms for 2015, but it has actually received 104 million 1095-C forms and has rejected 5.4 percent of the forms ... [The Taxpayer Advocate Service] helped 10,910 taxpayers with ACA premium tax credit issues in the 12-month period ending Sept. 30, up from 3,318 in the previous 12-month period."