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Pension plan de-risking removes 1.1M participants: PBGC

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Sponsors of nearly 15% of large pension plans have de-risked those plans during the past five years, removing more than 1.1 million participants, the Pension Benefit Guaranty Corp. said Thursday.

The PBGC analysis is the first of its kind. It has found that of 3,590 plans with at least 1,000 participants, 534 implemented a de-risking program. About 75% of the 534 plans offered to convert participants’ annuity to a cash lump-sum benefit; the rest shifted participants’ benefits to insurers through purchasing group annuities.

The analysis, covering the five-year period from 2009 through 2013, said of about 33.3 million plan participants, the de-risking efforts removed just over 1.1 million.

Employers that include well-known corporations, such as Archer-Daniels Midland Co., Ford Motor Co. and General Motors Co., have de-risked their pension plans for several reasons.

By reducing the plan size, employers are less likely to have to pump more money into their plans when equity markets decline or interest rates fall, which boosts the value of plan liabilities.

In addition, employers can reduce the amount of premiums they must pay the PBGC by reducing the size of their plans. Those premiums have risen sharply due to rate increases Congress has approved in the past several years. The most recent increase, which lawmakers approved in October, will boost the base premium over the next several years. Now $57 per participant, the base premium will rise to $90 per participant in 2019.

That reduction in plan size, though, also means less premium income for the PBGC, which uses the revenue to pay benefits to participants in failed plans the agency takes over.

“Lower insurance premiums may affect PBGC’s long-term financial condition,” the PBGC said.

The analysis also found that the bulk of de-risking activity has been in recent years. For example, employers implemented de-risking programs in 258 plans in 2012, while 173 plans had such programs in 2013.

By contrast, just 46 plans were de-risked in 2010 and 60 were in 2011.

While the analysis did not analyze de-risking activity in 2014 and 2015, “press data indicates a high level” of de-risking during the period, according to the analysis.