The Impact of Interest Rates on Plan De-Risking

Interest rates are key to deciding upon de-risking moves as they drive the liabilities, lump sums, the cost of annuities, the value of fixed income assets, and the cost of financing. Such transactions always seem to come down to interest rates.

Generally speaking, as interest rates increase, liabilities are driven lower – and the cost of lump sums and annuities decrease.  So, other things remaining the same (which they never do, of course), firms tend to wait for rates to move higher if they are anticipating de-risking moves.

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