In the past few years, a growing number of defined benefit pension plans have been opting to transfer risk from the balance sheet through lump sum cashout windows and annuity purchases from insurers. While a few high-profile retiree annuity purchase transactions were made in 2012, the most common form of risk transfer to date has been lump sum cashout windows for terminated vested participants.
The advantages to the plan sponsor of a lump sum cashout can be numerous, and the economics of such an exercise are often very compelling. Furthermore, increases in interest rate levels and improvements in funded status during 2013 may make 2014 an opportune time to capitalize on these advantages.
Benefits to the plan sponsor of offering a terminated vested cashout window include: