WORDS OF AUTHORITY
Are You Factoring Pension Risk
Into Planning? Defusing the
Pension-Savings Time Bomb
Rick Jones, FSA, EA, Senior Partner, Aon
Around the world, the retirement and pension savings gap—the difference
between the amount of money
people will need in retirement and
the amount of money that is being
saved—is a source of constant
headlines and concern.
The current environment of
low interest rates and investment
returns, sluggish wage growth
and inadequate private savings
is creating a retirement-funding
problem. While this has enormous
implications for everyone,
retirement plan sponsors must start
taking action now.
Why does this matter?
It’s estimated that 10,000
American baby boomers retire every
day. An aging population presents
significant challenges. Expenditures
could rise due to the growing costs
of providing pensions, health and
social care. In this environment of
rising costs and risks, plan sponsors
are turning to new ways to reduce
What can employers do?
In the event a provider fails to
deliver on pension obligations, the
federal Pension Benefit Guarantee
Corporation insures corporate
pensions. However, a range of
factors—including post-financial-crisis regulation and pension-portfolio returns being offset by
decreasing interest rates and life-expectancy increases—have driven
up defined benefit-pension-fund
costs and liabilities.
From encouraging employee
accountability to better managing
the risk, new strategies for
employers will be required. This can
• Making lump-sum offers to
future retirees. In our 2017 Pension
Risk Survey, we found that 43
percent of U.S. firms have offered
buyouts to future plan beneficiaries.
• Shifting obligations for
existing retiree groups, or entire
plans, to insurance companies.
How to do it?
Implementing changes to a
pension strategy involves HR
managers, and any decision to
reduce pension liabilities will need
buy-in across the company.
The Aon 2017 Global Pension
Risk Survey revealed that visibility
and control of a company’s pension
risk has become a board-level
concern and new tools are being
used to reduce risk.
Questions to ask:
• Are you confident in your
company’s readiness to fulfill its
• How would you describe your
appetite for risk and volatility in
your pension plan and its finances?
• Do you plan to make
additional cash or stock
contributions to fund existing
pension obligations ahead of
minimum required amounts?
• Do you have the bandwidth
and skillsets to manage these
evolving pension strategies?
• Are you aware of how other
plan sponsors are reducing their
pension liabilities without affecting
Aon strives to help clients
navigate the complexities of the
cost and risk associated with
pension plans. We advise clients
on the design of their retirement
program and suggest different
forms it should take to address
the needs of their organization,
employees and retirees. We are
dedicated to delivering custom
solutions that fulfill obligations
but also reduce risk for future
For more information, contact