A resurgent economy, strong equity markets and modestly higher interest rates are providing a tailwind to plan sponsors. The change in economic sentiment is driven in large part by expectations that companies will get a boost to cash flow from lower corporate tax rates, infrastructure spending and reduced regulations under the new administration.
Sponsors with well-funded plans could consider a large pension risk transfer transaction to meaningfully reduce risk. Other sponsors with limited de-risking budgets could engage in targeted retiree buy-outs or borrow to improve their plan's funded position before embarking on a de risking journey. Building a strong defense now may position companies, particularly those in cyclical industries, to better endure the next downturn, allowing them to pursue growth initiatives at a time when their competitors may be cutting back. This environment could be fleeting, however, and we believe now is the time to prepare for a lower-risk future.
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