Pension Rescue


Many companies today are faced with underfunded defined benefit pension plans that they can neither terminate (due to their being underfunded) nor afford to fund. 

They are caught in a perilous dilemma: the pension plan's liabilities are increasing at a rate of 5% or more, while the market investments are losing money during volatile or down markets and their fixed interest investments are earning somewhat less than the interest rate.

Frequently, such companies also have incurred losses since the outset of the recession and cannot make up the shortfall in the pension fund.


An employer who sponsors a pension plan can arrange for a pension settlement annuity policy. 

Such policy will replace the pension plan as the guarantor of the pension benefits.


The employer enters into an arrangement with an insurance company which guarantees to pay the pension benefits when due.

The employer continues to guarantee the shortfall (to the insurance company), as under present law.

The insurance company obtains potentially higher investment returns through its investment account.  Such returns can be written into the contract as a contractual guarantee both as to the current and the guaranteed earnings rates.


Advantages of such an arrangement include:

  • Potential for eliminating or reducing shortfall
  • Moves shortfall from employer's balance sheet to footnotes relative to contingent liabilities
  • Potential higher investment returns
  • Minimizes or eliminates increasing pension liabilities

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