Unfunded pension liabilities are forcing many pension plan sponsors to look for alternative ways to manage their pension risk.
New industry regulations require companies to show their pension liabilities on their balance sheet. They also must contribute to their pension plans every year, which takes away money from their core businesses. This has forced many companies to look at different options to manage their risk and eventually terminate their defined benefit pension plans.
Some companies are borrowing money to pay off their plan’s pension liabilities because it is easier to account for a loan on their balance sheet than volatile pension liabilities.
Insurance companies have come up with some new products to help plan sponsors manage their pension risk, including an insured liability driven investment strategy.