Laurie E. Vance, a senior vice president in Fidelity Investments’ consulting services, says that “derisking is such a broad term at this point — it applies to everything.” For practical purposes in retirement plans, Vance says Fidelity divides the strategy into two formats: successfully matching assets to liabilities (“likely making them a little more conservative”) and companies that seek to strip the risk altogether.
“Over the past few years it’s [been] closing the plan, freezing the plan — now, we’re actually seeing them trying to shed the liability,” Vance said last week at a breakfast discussion on benefits consulting hosted at Fidelity’s Washington, D.C., office. The breakfast touched on many topics, but its central theme was DB plan cost-reduction with an emphasis on risk.
As an example, Vance cited GM, whose leaders told retirees, “you can take a lump sum or continue with the annuity. And that’s a very popular way [for plan sponsors to] try to get rid of the old liabilities.”
Vance said there is little point in fighting such changes in the DB realm, and that plan sponsors can only help plan members brace and plan for it. “The key is, it’s happening. You have to prepare the individual,” she said. “And they have to know and make the choice that’s best for them.”
As for plan sponsors themselves, she said, “The guidance for big companies is: How do I communicate it? How do I give them the options? And, how do I help them make the choice that’s right for them?”
