The Revenue Act of 1978 included a provision under which employees were not taxed on the portion of income they elect to receive as deferred compensation rather than as direct cash payments, thus making 401(k) plans possible. The emergence of defined contribution plans began a transition away from the plan sponsor offering and managing the retirement benefits, to participants having the ability to directly manage their retirement savings.
Many organizations froze their pension plans. Unfortunately, many of these organizations are still holding that pension risk. Because these defined benefit plans have not been formally terminated, they still require a significant financial commitment from the organization.
There are a number of strategies to assist organizations in reducing and ultimately eliminating the financial burden of defined benefit pension plans. Pension risk transfer and de-risking strategies are about permanently removing risk from an organization’s pension plan and the overall balance sheet. A successful de-risking strategy will outline ways to make a more efficient pension plan by moving liability that is not beneficial to the organization. Many organizations have already made the decision to terminate their pension plan, using either a hard-freeze or soft-freeze strategy. The goal is to realize a current cost savings and to create a formal plan for the eventual termination of the defined benefit plan.
To learn more about strategies to help organizations reduce and ultimately eliminate the financial burden of defined benefit pension plans, or to begin talking to a retirement plan advisor, please get in touch by email or by calling (855) 882-9177.
