Lump-sum payments and buyouts are growing trends with employers looking to derisk their pension funds, said Peter Austin, head of fixed-income solutions at T. Rowe Price Group, at Pensions & Investments' Investment Innovation and the Global Future of Retirement conference in New York on Tuesday.
“Interest in both lump sums and buyouts are quite high,” Mr. Austin said at a panel discussion on global derisking trends.
He added that some companies, such as Ford Motor Co. Dearborn, Mich., are taking some of these legacy pension funds and applying a lump-sum opportunity because “it's easier, it's less costly and it's a good way to test the organization's ability to execute a pretty complicated action.”
Fellow panelist Dylan Tyson, a senior vice president at Prudential Retirement, agreed with Mr. Austin about seeing these trends, adding that it's “helpful” to think of pension derisking as “part of the fund's lifecycle.”
Carolyn Wood, director of retirement at Bimbo Bakeries USA, shared details of her firm's derisking plan at the panel discussion. Bimbo Bakeries, which has $1.9 billion in total assets, split roughly equally between defined benefit and defined contribution plans for 23,000 employees, decided to derisk its five DB plans with assets of $950 million. The aggregate funded status is 89%.
Bimbo has been using a liability-driven investment strategy since 2007, making monthly contributions to the LDI strategy to reduce potential cash-flow volatility. Realizing that derisking wouldn't be a “one-size-fits-all” solution, Ms. Wood said Bimbo will create hybrid derisking processes for each plan because each has different legacy issues.
To aid derisking, Bimbo is cleaning up internal data and considering offering lump sums to terminated vested employees. The firm is also helping educate pension plan board members on the derisking process.
