Innovative pension transaction sets a precedent in Canada while preserving security for plan participants
TORONTO, March 4, 2014 /CNW/ - A recent precedent-setting pension transaction will open the door for many Canadian employer-sponsored defined benefit (DB) pension plans looking to pursue new financial and pension risk management strategies, according to retirement experts at global professional services company Towers Watson (NYSE, NASDAQ: TW).
Towers Watson recently implemented an innovative solution addressing hundreds of millions of dollars of pension obligations in a single transaction with one of its clients; the largest such transaction of its kind in Canada. This restructuring of pension risk was achieved through a combination of a third-party annuitization and a self-insurance solution. Unlike a traditional annuity purchase, this approach optimized the use of company capital and provided added pension investment flexibility.
"This solution allowed the organization to maintain the same level of pension benefit at a similar cost but increased its investment flexibility and efficiency. It also reduced the risk of trapped capital resulting from improving pension plan financials, yet at the same time provides plan members with the added comfort of knowing that their plan's funding is maintained and preserved," said Ian Markham, Canadian Retirement Risk Management Leader at Towers Watson.
The pension transaction comes at a time when the funding levels of Canadian plans have improved significantly. A recent analysis by Towers Watson found that the funded position among typical Canadian DB plans increased from about 75% funded at the end of 2012 to close to 100% a year later, due mostly to rising interest rates and strong stock market returns. "We are seeing an increasing level of activity and interest from organizations to take action now," said Markham. "Pension plan sponsors are keen to benefit from the recent improvement in the financial health of their plans in order to right size their financial risks. In this new era of pension risk management, plan sponsors want to understand the latest strategies and solutions that can optimize their DB pension risk exposure in order to keep their plans economically viable in the years to come."
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at www.towerswatson.com.
SOURCE: Towers Watson
For further information:
David Le Roy