Managing the assets and liabilities of frozen defined benefit plans might be the next frontier for financial firms.
Retiree Benefits LLC, New York, is the first firm to jump into the arena in the United States, and its executives hope that running frozen plans will become a major source of new business.
The new firm offers to acquire frozen defined benefit plans from corporate plan sponsors, assuming fiduciary responsibility for the plans and ensuring full benefit payments to the participants. Retiree Benefits and its investors will put up capital equaling 10% of the assets of the plans they acquire in order to ensure those full benefit payments, said Paul Palmer, chief executive of Retiree Benefits.
The new firm is being funded by three private equity firms: Amaranth Group Inc., New York; Cerberus Capital Management LP, New York; and Lightyear Capital Inc., New York. It will consult with Hewitt Associates, Lincolnshire, Ill., on human resource issues, and Groom Law Group, Washington, on the legal aspects of assuming fiduciary responsibility for the frozen pension plans.
Many companies are expected to close plans to new workers or freeze or cut benefit accruals for existing participants in their defined benefit plans. The process has already started for companies such as E.I. du Pont de Nemours & Co., Wilmington, Del., which announced Aug. 28 that it will freeze its $15.9 billion pension plan to new employees at the beginning of 2007 and reduce the accrual rate for existing participants to one-third the current level a year later.