By Alex Hyten, FSA, MAAA
Boise Cascade began their journey to de-risk their pension plan and liabilities in April 2018, kicking of a multi-year strategy that included a lump sum program, three retiree buy-outs and a final buy-in that transferred the remaining risk to an insurance carrier – in their case, Prudential.
From April 2018 through September 2019, Boise Cascade conducted a series of buy-out transactions to transfer 48% of the existing liabilities, totaling nearly $300 million. These transactions began with a Small Benefit Retiree population, followed by another buy-out to annuitize all of their remaining retirees in August 2018. A year later, in September 2019, Boise completed a third buy-out which consisted of any recent retirees since prior transactions.
The final phase of Boise Cascade’s pension risk transfer endeavor began in August 2020 through a buy-in transaction with Prudential. Not only did this divest the remaining risk of the plan, but it locked in all of the economics of the rest of the of this de-risking process. Prudential assumed responsibility for the final 52% of the liabilities, as well as any lump sum payments to pension plan participants who elected for a lump sum. Once the lump sum window concluded, the buy-in was converted to a buy-out at no additional cost, completing Boise Cascade’s pension de-risking journey and terminating the plan.
As the pension plan termination market has matured, a blueprint has emerged—one that places the selection of an insurer toward the end of what is a lengthy process. To follow this blueprint, however, can put organizations at risk, leaving them open to financial and insurer capacity uncertainties.
By involving an insurer early in the plan termination process, Boise Cascade was able to greatly reduce risk through a buy-in. A buy-in guarantees future benefit payments to a select group of participants, transferring market and longevity risk to the insurer at a price consistent with buy-out pricing. While Boise chose one particular path, there are multiple blueprints for plan termination. Plan sponsors can work with an insurer to find the best fit for their needs.
By de-risking the final tranche through a buy-in in August 2020, Boise Cascade was able to lock-in some of the most advantageous economics in recent history.
Don’t miss the AFP 2021 session, “Going To Zero: How Boise Cascade Locked In The Cost Of A Pension Plan Termination Upfront & How You Could, Too” and check out all the sessions on the AFP 2021 Session Explorer. Register for the conference here.
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