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Shift the Risk, Not the Return

Posted By Michael J. McGlothlin, CLU,ChFC,CFP,LUTCF, Thursday, April 26, 2018
Lately, I’ve spent a lot of time talking about pension risk transfers. I think it’s market that can explode over the next 12-18 months for any financial professional who is committed to talking to CEOs and human resources leaders. But, saving on premiums and taking a less valuable employee benefit off the table is only part of the benefit. The real benefit is the shifting of risk. Plan sponsors bear several risks that can be reduced or eliminated. The Real Risks Pension plan sponsors take on the investment risk of plan assets. Regardless of economic projections, managing risk will likely be more difficult within a plan for the immediate future. Rising interest rates will result in lower bond valuations. A choppy market will make it difficult to have steady returns necessary to hit funding targets. Life expectancies continue to increase in the United States. There is a requirement to pay the monthly income stated in the pension plan document. Regardless of how long the plan participant lives, the plan must meet that obligation. The problem is that the current funding status for many plans is below 100 percent, so the plan might not have enough assets to meet those obligations. The same problems exist for most retirees. They ask, “Do I have enough assets to generate the income that I need? And, will I live too long and exhaust those assets?” Unfortunately, business owners and leaders must answer that question for themselves, as well as for all their employees. The fact that business owners have an added responsibility for their employees’ retirement creates more stress and anxiety. Worth the Shift These risks can be shifted through pension risk transfer. The process can be cost effective. It’s long, but it can be easy and seamless for business owners. There is little reason to keep risk on your balance sheet when there are alternatives. Unfortunately, most business owners don’t know about the options available to them. It makes a great conversation for you to have with business owners: Shift this risk, and you will gain the trust of the entire company. Winning Strategy Shift the longevity risks for corporations in a similar fashion to individual retirement plans. Take away investment risks and the potential of living too long, and you’ll gain a corporate client plus all the employees. Policy Review - 10 Ideas For Existing Life Insurance Craving More? Watch the replay of our webinar where we talk how pension risk transfers can be an effective tool for defined benefit plan sponsors seeking solutions for rising costs and longevity risk.

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