Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Zurich uses pension de-risking strategy to cut costs and maintain benefits

Reprints

A pension de-risking strategy that included offering a temporary lump-sum payment window in 2012 to a select group of terminated vested participants resulted in a significant one-time reduction in pension expenses and an ongoing reduction in administrative costs for Zurich North America.

And a change to a more conservative investment mix in response to an asset liability study following the recent economic downturn will further help to protect the assets of the company's defined benefit pension plan going forward, according to Zurich North America Benefits Consultant Lisa Anderson.

Over the next few years, the target allocation of Zurich North America's pension fund assets will gradually transition from 55% equities and 45% bonds to 30% equities and 70% bonds, according to Sarah Staggs, head of benefits for the Schaumburg, Illinois-based North American unit of Swiss insurer Zurich Insurance Group Ltd., who added that she and her team are continuing to explore other de-risking opportunities.

“Unfunded pension liabilities do affect what an insurance company can do with its capital expenditures,” she said.

But Zurich North America has no intention of terminating its cash balance plan, because the company's leadership views it as a competitive necessity since approximately 60% of large property/casualty insurers continue to offer defined benefit pension plans, according to Ms. Staggs.

Still, with a large number of terminated vested employees still among its plan participants, many of whom had fairly small balances in the plan, it made sense to offer lump-sum distributions to reduce the amount Zurich North America was paying in premiums to the Pension Benefit Guarantee Corp., she said.

Of the 6,324 terminated vested plan participants eligible for the special lump-sum distribution, 2,415, or 38.19%, accepted the offer. This resulted in a 19% reduction in PBGC premiums, a 12% reduction in administrative costs, and a 9.2% reduction in the company's pension obligations, Ms. Staggs said.

“The goal around de-risking was containing costs and maintaining benefits,” Ms. Staggs explained. “And with the costs around pension administration, paying PBGC premiums and costs of searching people down, there's this question: Does someone who worked here 30 years ago still have a vested interest in Zurich, and do we have a vested interest in them? We wanted to make sure that this was seen as spending benefits dollars wisely.”

Read Next