Retirement risk transfer: Now may be the time to consider offloading the risk


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Some of the nation’s largest and most reputable brands, like Ford and Coca-Cola, have long offered a retirement plan, a benefit that has historically helped retain talent and reward employee loyalty with the promise of a steady stream of income for the duration of the employee’s retirement. In fact, a recent Athene survey found that more than a third of Americans (36%) indicated that they rely primarily on employer-sponsored retirement plans to save for retirement. Yet the world of private-sector pensions has become increasingly smaller, with only 15% of private-sector employees being offered a traditional pension plan in 2021, according to the Bureau of Labor Statistics.

Some may argue that today’s market and regulatory environment has made it too difficult for companies to manage their pension plan liabilities, but there is a “half-full” solution. One of the best ways for companies to lighten their balance sheets while retaining their employees is to offload pension risk through pension risk transfer (PRT).

So what are the retirement risk transfer solutions?

PRTs are insurance solutions that allow a company or plan sponsor to transfer some or all of the major pension plan risks to an insurer. The retirement risk transfer process is governed by the Department of Labor and the Employee Retirement Income Security Act (ERISA). ERISA prevents a plan sponsor from structuring pension risk transfers in a way that reduces pension benefits, thereby ensuring the financial security of retirees.

In 2021, about 420 PRT cases representing about $30 billion in premiums were replaced by insurers, according to LIMRA. That’s largely because these solutions help satisfy all three parties involved: the plan sponsor, the insurer, and most importantly. end users (also known as pension plan participants), who can have peace of mind when planning their respective retirement.

In many scenarios, retirees are served by the best dedicated annuity administrators who can leverage the expertise of their insurance company. To even be considered for pension risk transfer, insurers must be well capitalized, well rated and pass rigorous fiduciary scrutiny. Well-structured transfers aim to improve the financial situation of plan participants, who in turn benefit from pension plans that are fully funded primarily by high-quality fixed-income securities.

For companies looking to reduce the risk of their pension liabilities and lighten their balance sheets, PRTs are an increasingly attractive option. Dan Akerson, CEO of General Motors, saw the benefits of PRT solutions in 2013 when he said, “Through a lot of hard work, I think we’re able to act like an automotive company again, not such as a medical insurance company or a pension fund attached to an automobile company. PRTs give companies greater flexibility to stabilize their operations and do what they do best: reinvest in the business and focus on their core business, current employees and future growth.

It is also a symbiotic relationship for insurers because these transactions offer a growth opportunity to their partners, which in turn allows them [the insurer] be better insurers for their respective policyholders.

For companies that are meeting or are close to meeting their pension obligations, now may be the right time to consider a PRT arrangement as, for many, the investment gains have helped them get closer to funding full of their pension obligations. In fact, according to research by Milliman Inc., the 100 largest corporate pension funds were 106.3% funded at the start of July 2022. Without worrying about having to meet their pension obligations, business leaders can focus on growth by providing liquidity and investments for continued market volatility and rising interest rates. And, once employees are assured that their pension benefits will be preserved, companies have taken a further step towards increased employee retention and motivation.

How to choose a PRT partner

It is crucial for companies to find trusted and experienced partners who can tailor customized solutions to achieve the best possible outcome for both the company and their pension plan members. It is critical to work with a provider that has a proven track record of always paying and has the ability to continue to pay all required benefit amounts to participants.

Financial strength, expertise in managing pension obligations and prioritizing pension plan participants are all necessary elements for an insurer. When considering a PRT partner, look for an insurer whose top priority is protecting policyholders, who understands the seriousness of this liability and who is well equipped to meet retirees’ needs from a financial security perspective.

PRT transactions are a modest solution that can help secure the fortunes of thousands of working Americans while delivering value to businesses by helping them weather the volatility ahead.

Richard McEvoy is Senior Vice President and Head of Group Retirement Annuities at Athene.


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