Case study: complexity is not a deal breaker for de-risking

Unlocking pension de-risking solutions for plans with complex features

DB pension plans can be complicated, making many Canadian plan sponsors feel that pension de-risking may be out of reach for them. But the market has evolved. Plan sponsors now have access to a full solutions toolbox for many features that were once barriers to a pension risk transfer (PRT) transaction. Innovation continues to drive the PRT market and to meet plan sponsors where they’re at – plan complexity and all. 

This case study explores a recent group annuity transaction called Project Beacon. It shows how market evolution and innovation are being combined to overcome specific complex pension de-risking challenges.

Please reach out to our team if you have questions about this case study or want to discuss what de-risking your pension plan could look like. We’re here to help: DB.Solutions@sunlife.com.

Project Beacon

De-risking across all member cohorts

Project Beacon, like many other plans, included a variety of member categories. There was a large group of deferred members, as well as active members, alongside a strong contingent of retirees. The different member groups spanned different retirement ages, early retirement adjustments and varied forms of payment – and yet the plan sponsor wanted a uniform member experience. Historically, multiple benefit structures could deter sponsors from transacting – and that's changing . As the PRT market evolved, insurers developed the expertise and capacity to comfortably model and underwrite a wider range of cohorts. This came in handy for Project Beacon, where the different member categories were all priced competitively.

Transferring pension liabilities to an insurer earlier and for all members can stabilize your company’s finances, lock in costs and reduce the need of handling responsibilities over the longer term. We’re seeing a trend in plan sponsors wanting a comprehensive de-risking approach versus solving for one cohort at a time.

Member payment options front and center

An important aspect of Project Beacon’s transaction was portability for members. Portability allows members to take their annuity as a lump sum instead of lifetime annuity payments. Plans with portability options have increased administrative complexity and transferring the risk to an insurer has been expensive historically. 

For Project Beacon, portability was available for a large group of members, making flexibility and member experience an important focus for the plan sponsor as they considered pension de-risking. Market innovation now allows portability to be priced competitively. Drawing on a growing body of experience data, there's potential for insurers to adjust their assumptions such as commuted value election rates and timing. This allows them to price without incorporating additional conservatism. As such, plan sponsors don't have to sacrifice flexibility when purchasing annuities. This is a good example of how member choice can coexist with pension risk transfer and it helped achieve the plan sponsor’s main objective for Project Beacon.

Protecting against inflation

We get many questions about inflation protection when plan sponsors are considering de-risking – and we have good news! Inflation-linked pensions aren’t ‘too difficult’ to insure anymore. The PRT market is therefore seeing meaningful volumes of CPI-linked annuity purchases in recent years, with $3.3 billion in 2024 and $1.3 billion in 2025, signaling real market maturity.

In Project Beacon, most benefits included CPI-linked provisions – with 100% of CPI uncapped or with a cap at 3%. Transacting with this group follows the market trend, proving it is possible to transfer inflation risk while maintaining benefit promises made to members. Insurers now have strong capabilities for complex inflation provisions, expanding what's possible. With the help of Real Return Bonds, more insurers now have the experience and robust risk management framework needed to effectively hedge a wide range of inflation-linked provisions (e.g., formulas with offsets or carry-forward). For Project Beacon, this meant insuring benefits without having to change any of the indexation formulas.

Case study takeaways

Plan complexity is not a deal-breaker in the PRT market.

Project Beacon included:

• deferred members,
• active participants,
• indexed benefits, and
• portability options.

These features no longer require plan redesign before a PRT transaction. Many of the complexities that Project Beacon faced are now common in the market and the solutions form a proven, execution-ready toolbox. Once a specific challenge is solved, the way is paved for insurers to do it again. 

Ready to explore pension de-risking for your plan?

Sponsors have more timing and structuring flexibility than ever before. Reach out to your consultant or pension expert to discuss your pension challenges and what innovative solutions your plan may need, or which established tools can help achieve your pension objectives. No need to wait; the PRT market is ready to help solve your challenges!