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U.S. corporate sponsors of defined benefit (DB) pension plans in recent years have been de-risking by paying premiums to transfer their pension plan assets and liabilities to the balance sheets of third-party insurers. The passage of the Moving Ahead for Progress in the 21st Century Act (MAP-21) in 2012 provided the pension funding relief necessary to make de-risking a mainstream corporate activity. This study provides the first empirical analysis of plan and firm factors that cause a firm to de-risk its DB pension plans. We find a positive association between de-risking and aggregate corporate risk-taking. The results also show that de-risking, on average, has a stronger effect on corporate financing policy than investment policy, leading to an increase in credit risk reflected in a firm's credit rating and cost of debt. Also, we present suggestive evidence that the reallocation of pension risk increases firm idiosyncratic risk and excess returns.

Firms have attempted to de-risk their pension obligations by offering its pension beneficiaries a lump-sum distribution instead of the guaranteed payments to be paid to retirees in a defined benefit pension plan. We examine the stock market reaction to the announcement of these offerings using event study methodologies. We find a statistically significant positive cumulative abnormal returns for the 20-day period prior to the event, the 20-day period after the event, and for the entire 41-day event period surrounding the announcement. We also find that the cumulative abnormal returns are higher the more liabilities a firm has and increases with the level of funding of the pension plan. Our results contribute to the literature on pensions by finding that firms that buy out their pensioners’ defined benefit payments via a lump-sum distribution experience an increase in firm value. There is a significant amount of analysis of such buyouts in the literature and in the press, but our results are the first to examine and document the increase in value derived from such pension changes. We also more fully develop the motivations for such events from a cost/benefit perspective.

In the past 30 years, as sponsors of defined benefit (DB) pension plans were facing more severe underfunding challenges, pension de-risking strategies have become prevalent for firms with DB plans to reduce pension-related risks. However, it remains unclear how pension de-risking activities affect firms' performance, partially due to the lack of de-risking data. In this study, we develop a multi-phase methodology to build a de-risking database for the purpose of investigating impacts of firms' pension risk transfer activities. We extract company filings between 1993 and 2018 from the SEC EDGAR database to identify different \"de-risking\" strategies that US-based companies have used. A combination of text mining, machine learning, and natural language processing methods is applied to the textual data for automated identification and classification of de-risking strategies. The contribution of this study is three-fold: (1) the design of a multi-phase methodology that identifies and extracts hidden information from a large amount of textual data; (2) the development of a comprehensive database for pension de-risking activities of US-based companies; and (3) valuable insights to companies with DB plans, pensioners, and practitioners in pension de-risking markets through empirical analysis.

Trustees and employers are increasingly looking at the various de-risking options available to help manage the £1 trillion liabilities in UK defined benefit pension schemes. This article investigates why there is an increasing appetite for de-risking, including the challenges faced by schemes as a result of increasing costs, longevity trends and accounting practices. De-risking exercises can take many different forms and can be tailored to an individual scheme's de-risking goals, trustee and company budgets, and relevant economic conditions. A number of options available to schemes are highlighted in this article and the concept of flightpath (a designated plan that enables a scheme to reach buyout over a period of time) is explored. The ultimate end goal of securing pension scheme benefits for the lifetime of members and their beneficiaries is in the interest of all stakeholders involved. Through good communication and planning, the relevant steps can be taken to reduce risk in a pension scheme, while understanding that any plan needs to be adaptable as inevitably situations will arise that require manual intervention or a change in direction. [PUBLICATION ABSTRACT]

In this paper, we propose a de-risking strategy model for LTC insurers facing with longevity and disability risks, by constructing hedge positions with vanilla disability swaps and options. We rely on long-term care insurance in a multiple state framework. The optimal hedge level for each de-risking strategies is computed, respectively, by minimizing the total cost of the de-risking strategy under the Conditional Value-at-Risk (CVaR) constraint on the total unfunded liabilities and minimizing the CVaR under a total cost constraint. A numerical application is performed, and the results suggest that a de-risking strategy based on disability derivatives can be a viable solution to reduce the portfolio riskiness of LTC insurers.

The emergence of the asset economy in advanced capitalist countries has enabled significant asset accumulation by high‐wealth individuals, and the rise of finance has provided new, profitable investment vehicles for those with investable capital. This accumulation process has been described as a form of compensatory logic to achieve protection from future risks, especially in the current neoliberal environment with governments reducing state pensions while promoting tax‐deductible private investments as a substitute for state provision. This article reports the results of qualitative research into the private wealth accumulation attitudes and behaviours of high‐wealth individuals and their worries about achieving a comfortable retirement despite their substantial wealth holdings. Although the interviewees reside within the top 5% of the wealth distribution in the UK and would be expected to feel confident that their wealth will be sufficient to support their retirement needs, they convey a sense of uneasiness and concern that they will still not have enough to support their expected retirement lifestyles. In response to this perceived risk, these high‐wealth individuals engage in a variety of what I call “de‐risking” behaviours with the goal of mitigating the risk of insufficient wealth to support retirement. The article contributes to our understanding of the processes utilised by high‐wealth individuals to help ensure they have sufficient wealth to support their desired comfortable retirement by engaging in strategies intended to de‐risk their financial lives.