A new way to look at your DB pension plan and grow your company.
Is your company running a DB pension division?
Many companies are recognizing that their defined benefit pension plan is like an insurance subsidiary that provides a single product (an annuity) to a single group of customers (your plan members). As the CFO of that company, how would you evaluate the business strategy of the DB Pension Division? And how does it fit into the business strategy of your core business?
The DB Pension Division examines what happens when companies view their pension plan as an integrated part of their corporate strategy. By using the analogy of a pension plan as a business division, we address some of the questions that CFOs are asking:
- Where should my company take risk – my pension plan or my core business?
- Which approach would my shareholders prefer?
- What can I do to reduce the financial leverage in my pension plan?
- How can I afford to keep my promises to plan members?
"Many companies are realizing that taking risk in their pension plans doesn't make sense and that this risk is better deployed in their core businesses where they have a competitive advantage," said Brent Simmons, Senior Managing Director, Defined Benefit Solutions, Sun Life Financial. "When they look at their pension plan through a corporate strategy lens, they realize that de-risking their pension plan provides benefits for their business, which in turn rewards their shareholders."
Luckily, there are options to reduce the risk in their DB Pension Division by:
- Putting it into run-off by matching assets and liabilities (also known as liability driven investing); or
- Divesting it to an insurance company by purchasing annuities.
