PLANADVISER - July/August 2019 - 44
beyond(k)
Pension
Risk
Transfer
On the
Rise
With more insurers in
the business, pricing
has grown competitive
T
he trend in defined benefit (DB)
plan sponsors transferring their
plan's liabilities to participants or
to an insurance company is increasing.
In their reporting to the LIMRA Secure
Retirement Institute for all of 2018,
insurers cited having sold 29,632
pension buyout contracts, versus 29,417
in the first quarter of this year alone.
Pension risk transfer (PRT) is done
by one of two methods. In the first,
the plan purchases annuities from an
insurance company, transferring liabilities
for some participants (partial risk
transfer) or all
(full risk transfer).
In
the second, it gives a certain category
of participant-e.g., terminated vested
employees-the choice of receiving a
lump sum, which satisfies its liability
for these individuals; this can be either
a one-time offer or become a permanent plan feature.
There is also an annuity buy-in and an annuity buyout.
With the buy-in, the insurer is responsible for funding the
payments to participants. The plan sponsor, and the plan,
however, maintain a connection with the participant.
With a buyout, all obligations and communications are the
responsibility of the annuity provider.
New York City-based chairman of the American Academy
of Actuaries' Pension Committee Bruce Cadenhead says it
is a good environment for PRT because many insurers have
entered the business, making pricing competitive.
Interest rates, which are currently low, are a factor
both in liability calculations and annuity pricing, observes
Mark Unhoch, a partner and practice leader for October
Three Annuity Services in Chicago. Corporate bond rates
and 10-year Treasury note rates are additional factors in
calculating liability, as is mortality, which affects an annuity's
cost.
For PRT, Unhoch says, there is a minimum threshold
requirement that a plan be 80% funded prior to an annuity
purchase and remain so afterward. Unless a plan is more
than 100% funded, the sponsor will have to put in additional
cash because the annuity will cost more than the liability
being transferred. Unhoch says it could cost 103% to 105%
of liabilities to purchase an annuity. So, for example, if a
plan is 90% funded, the sponsor would have to contribute
13% to 15% of the liabilility, in cash, for the plan to be able
to purchase the annuity.
44 | planadviser.com July-August 2019
Art by Linda Liu
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PLANADVISER - July/August 2019
Table of Contents for the Digital Edition of PLANADVISER - July/August 2019
An Array of Models
2019 Recordkeeper Services Survey
Advice for All
Pension Risk Transfer on the Rise
Investment Oversight Partners
Through the 'Window'
Now Who is a Fiduciary?
Venue Clauses
The SEC's Standard on IRA Rollovers
PLANADVISER - July/August 2019 - C1
PLANADVISER - July/August 2019 - FC1
PLANADVISER - July/August 2019 - FC2
PLANADVISER - July/August 2019 - C2
PLANADVISER - July/August 2019 - 1
PLANADVISER - July/August 2019 - 2
PLANADVISER - July/August 2019 - 3
PLANADVISER - July/August 2019 - 4
PLANADVISER - July/August 2019 - 5
PLANADVISER - July/August 2019 - 6
PLANADVISER - July/August 2019 - 7
PLANADVISER - July/August 2019 - 8
PLANADVISER - July/August 2019 - 9
PLANADVISER - July/August 2019 - 10
PLANADVISER - July/August 2019 - 11
PLANADVISER - July/August 2019 - 12
PLANADVISER - July/August 2019 - 13
PLANADVISER - July/August 2019 - 14
PLANADVISER - July/August 2019 - 15
PLANADVISER - July/August 2019 - 16
PLANADVISER - July/August 2019 - 17
PLANADVISER - July/August 2019 - 18
PLANADVISER - July/August 2019 - 19
PLANADVISER - July/August 2019 - 20
PLANADVISER - July/August 2019 - 21
PLANADVISER - July/August 2019 - 22
PLANADVISER - July/August 2019 - 23
PLANADVISER - July/August 2019 - An Array of Models
PLANADVISER - July/August 2019 - 25
PLANADVISER - July/August 2019 - 26
PLANADVISER - July/August 2019 - 27
PLANADVISER - July/August 2019 - 2019 Recordkeeper Services Survey
PLANADVISER - July/August 2019 - 29
PLANADVISER - July/August 2019 - 30
PLANADVISER - July/August 2019 - 31
PLANADVISER - July/August 2019 - 32
PLANADVISER - July/August 2019 - 33
PLANADVISER - July/August 2019 - 34
PLANADVISER - July/August 2019 - 35
PLANADVISER - July/August 2019 - 36
PLANADVISER - July/August 2019 - 37
PLANADVISER - July/August 2019 - 38
PLANADVISER - July/August 2019 - 39
PLANADVISER - July/August 2019 - Advice for All
PLANADVISER - July/August 2019 - 41
PLANADVISER - July/August 2019 - 42
PLANADVISER - July/August 2019 - 43
PLANADVISER - July/August 2019 - Pension Risk Transfer on the Rise
PLANADVISER - July/August 2019 - 45
PLANADVISER - July/August 2019 - Investment Oversight Partners
PLANADVISER - July/August 2019 - 47
PLANADVISER - July/August 2019 - Through the 'Window'
PLANADVISER - July/August 2019 - 49
PLANADVISER - July/August 2019 - Now Who is a Fiduciary?
PLANADVISER - July/August 2019 - Venue Clauses
PLANADVISER - July/August 2019 - The SEC's Standard on IRA Rollovers
PLANADVISER - July/August 2019 - C3
PLANADVISER - July/August 2019 - C4
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