PLANADVISER - September/October 2018 - 50

beyond(k)
Pension Risk Transfer
U
.S. single premium pension buy-out
sales surpassed $8.2 billion in this
year's second quarter, more than
doubling those in the second quarter
of 2017, according to the LIMRA Secure
Retirement Institute (LIMRA SRI)'s quarterly
U.S. Group Annuity Risk Transfer
Survey. LIMRA SRI projects the pension
risk transfer (PRT) market will exceed $23
billion by year-end.
In fact, the PRT market has been
steadily growing for a decade and presents
an opportunity for plan advisers to add a
valuable service for defined benefit (DB)
plan sponsor clients.
As Michael Devlin, a principal at BCG
Pension Risk Consultants, in Braintree,
Massachusetts, says, pension plan risk
includes
the liability, or benefit, owed
to each participant, and DB plan sponsors
hold all of the market, interest-rate,
longevity and regulatory risk associated
with liabilities.
A pension risk transfer permanently
removes that liability from the plan sponsor's
balance sheet and fulfills the employer's
obligation to participants, Devlin says.
To conduct a PRT, plan sponsors have two
options: offer lump-sum benefit payments
or buy a group annuity to cover liabilities.
Lump sums may be offered to terminated,
vested participants only-not to retirees in
pay status. Annuitization can be utilized
for both retirees and terminated, vested
participants.
When offering lump-sum payments,
plan sponsors also have to enable the
recipients to accelerate the start date of
their monthly benefit, Devlin says. With
monthly annuity payments, offering them
before the participant turns 65 will reduce
the total amount he gets paid. Devlin says
most participants do not ask for this; they
either take a lump sum or not.
For plan sponsors, once the participants take a lump
sum or are transferred to an insurance company's annuity,
the liability associated with them is gone, as are all other
DB-plan-related risks the sponsor has borne. In addition,
some costs are eliminated, such as Pension Benefit Guaranty
Corporation (PBGC) per-participant premiums and
some actuarial administration costs.
The difference between offering lump sums and transferring
participants' liabilities to a group annuity is that,
with an annuity transfer, the DB plan sponsor does not need
to amend its plan document or get participants' authorization,
Devlin says. " Of course, it is good practice to let [participants]
know the transfer is coming, what company will be
handling their benefits, and to tell them to keep all correspondence
from that insurance company. "
Advisers can reduce clients' risk and increase their own value
50 | planadviser.com September-October 2018
Art by Davor Gromilovic

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PLANADVISER - September/October 2018

Table of Contents for the Digital Edition of PLANADVISER - September/October 2018

Valuable Partnerships
Pension Risk Transfer
How to Explain CITs to Sponsors
Open MEP Opportunities
Appropriate Benchmarking
Investigations Intensify
PLANADVISER - September/October 2018 - Cover1
PLANADVISER - September/October 2018 - Cover2
PLANADVISER - September/October 2018 - 1
PLANADVISER - September/October 2018 - 2
PLANADVISER - September/October 2018 - 3
PLANADVISER - September/October 2018 - 4
PLANADVISER - September/October 2018 - 5
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PLANADVISER - September/October 2018 - 40
PLANADVISER - September/October 2018 - 41
PLANADVISER - September/October 2018 - 42
PLANADVISER - September/October 2018 - 43
PLANADVISER - September/October 2018 - 44
PLANADVISER - September/October 2018 - 45
PLANADVISER - September/October 2018 - 46
PLANADVISER - September/October 2018 - 47
PLANADVISER - September/October 2018 - Valuable Partnerships
PLANADVISER - September/October 2018 - 49
PLANADVISER - September/October 2018 - Pension Risk Transfer
PLANADVISER - September/October 2018 - 51
PLANADVISER - September/October 2018 - How to Explain CITs to Sponsors
PLANADVISER - September/October 2018 - 53
PLANADVISER - September/October 2018 - Open MEP Opportunities
PLANADVISER - September/October 2018 - Appropriate Benchmarking
PLANADVISER - September/October 2018 - Investigations Intensify
PLANADVISER - September/October 2018 - Cover3
PLANADVISER - September/October 2018 - Cover4
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