Pension Plan Sponsors Continue to Search for Ways to Reduce Liabilities

Dec 04, 2019

In an environment where defined benefit pension plans are seeing rising costs from declining interest rates, rising participant longevity/mortality, and rising Pension Benefit Guaranty Corporation premiums, most pension plan sponsors are looking for ways to manage, or eliminate, their defined benefit liabilities and their annual pension expense. 

In fact, many plan sponsors have chosen to freeze, or even cut, benefits in response to these rising liability costs. Lump sums have been a popular method of reducing future pension liabilities, eclipsing plan terminations and pension buy-outs. Fifty-four percent of defined benefit plans have already executed lump sum programs with another 26% planning to offer one in the near future, according to responses from a 2019 industry survey. Of those offering lump sums, over 67% intend to also offer them to existing retirees due to Internal Revenue Service guideline changes in 2019.¹

Pension risk transfers have become increasingly popular. In a recent LIMRA Secure Retirement Institute study, 80% of private-sector plan sponsors who offered both defined benefit and defined contribution plans said they were interested in exploring pension risk transfer strategies.² Over 2018-2019, LIMRA estimated that over $50 billion in liabilities had been transferred to insurance companies. ³

LIMRA also found that four of 10 of their survey respondents said that they were also pursuing Liability-Driven Investment (LDI) strategies where assets are used to hedge against the growth of the liabilities. In a 2019 NEPC study, 58% of defined benefit plans with a 90% funded status (the ratio of plan assets to liabilities) used LDI, compared to just 46% in 2017.¹

One explanation for the increasing popularity of these strategies has been the strong stock and bond market performance, and using LDI to “lock in” these market gains. However, another consideration is the increasing volatility of plan funded status – from not only the markets but also in the liabilities as plan assumptions and regulatory changes have moved the goal posts – which adds to plan sponsors’ frustrations in acting quickly to take advantage of de-risking windows. This has also led more plan sponsors to hire LDI managers or outsource chief investment officer roles to investment consultants.  

To learn more about how we can support you and your clients in this area, please contact your Newport representative.


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Newport Group, Inc. and its affiliates provide recordkeeping, plan administration, trust and custody, consulting, fiduciary consulting, insurance and brokerage services. Fiduciary consulting services are provided through Newport Group Securities, Inc., an SEC-registered investment adviser and FINRA-registered broker-dealer, and InterServ, LLC, an SEC-registered investment adviser. Newport Group Securities, Inc. and InterServ, LLC are affiliates of Newport Group, Inc. All securities transactions are provided through Newport Group Securities, Inc., in its role as broker-dealer. All fiduciary consulting services are provided through the registered investment adviser. when offering variable insurance products, Newport Group Securities, Inc. acts solely in its capacity as a broker-dealer.
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