Hardly a week goes by without a corporation announcing that it is de-risking its pension plan, either by shifting the liability to provide promised benefits to an insurer through a group annuity or giving certain participants the option to convert their annuity benefit to a cash lump sum. In an interview with Business Insurance Editor-at-Large Jerry Geisel, Matt Herrmann, a senior consultant in the St. Louis office of Towers Watson & Co., discussed these and other pension de-risking issues. Edited excerpts follow.

Q: This month, two major pension de-risking deals were announced after what seemed to be a lull. Retailer J.C. Penney Co. Inc. and the U.S. subsidiary of Dutch technology company Royal Philips shifted obligations to insurers including Prudential. Why is such de-risking activity picking up?

A: While larger deals tend to be somewhat episodic, there have been underlying pension de-risking trends. Since 2012, there have been some 500 lump-sum transactions and over $60 billion in annuity purchases from major insurance companies. The headlines are often spread out and center on the large deals. In fact, this has been an underlying trend for a number of years.

Q: What are the key factors that have driven employers to de-risk their pension plans?

A: Broadly speaking, there is a desire to reduce risk. For many plan sponsors — but not all — there is a desire to work their way out of the pension business.

When you think about the mechanisms to get out of the pension business, effectively, there are really only two paths to do so: One is to offer lump sums to participants, while the other is to purchase an annuity contract from an insurance company.

Q: What are the pros and cons of each de-risking approach?

A: Lump sums provide participants an option to decide to either continue with their annuity benefit or to take the lump sum and effectively manage the money themselves.

The annuity purchase is more of a business transaction, where an organization is trying to get out of or away from the pension business.

On the one hand, one approach is about giving participants options. The other approach is about transferring the responsibility to manage pensions to organizations that have been and will be in that business for a long time.

Q: What kind of premium can employers expect to pay when they transfer pension liabilities to an insurer through the purchase of an annuity?

A: The premium issue is one of the biggest misnomers in the marketplace today. There is no typical premium. We have seen a wide range of premiums, which depend on the specifics of the group and the underlying factors that are driving the liability measurement.

Q: How competitive is the market? How many insurers are taking on these kinds of risks?

A: The market is very competitive in certain spots and a challenge in other spots. Certainly, for retirees with immediate annuities, there is a significant amount of competition where you can get up to 10 bidders in certain situations. For deferred liabilities, those placements and that marketplace can be a lot more challenging.

Q: Is there a typical takeup rate for converting to a cash lump sum?

A: While a lot depends on very specific facts and circumstances, a general takeup range might be between 50% and 60%. But there are a number of factors that can make takeup rates materially higher or lower. For example, lump-sum size can be a material factor, while the age also of a participant also can be a factor.

Q: The IRS has closed the door on annuity-to-lump-sum conversion offers to participants currently receiving monthly benefits. How common were such offers?

A: They were not very common. If we are talking about 500 employer conversion offers to participants who had not yet started to receive benefits, there were less than 20 offers to participants already receiving benefits.