The Benefits of Pension Risk Transfer

October 29, 2020

Very few companies would list “managing a pension plan” among their core business competencies. Pension plans are a benefit developed for the employees you’ve hired to make your company successful. The pension plan was not your company’s core reason to exist. To run a successful business, companies seek to have a well-managed pension plan and related liabilities so that the company can focus on what it does best.

Fortunately, managing pension liabilities is a core competency of financial services providers. Should a company choose to maintain its pension plan, defined benefit services help employers manage the assets, costs and administration.

However, with market volatility and low interest rates, combined with increasing Pension Benefit Guarantee Corporation (PBGC) premiums, companies face challenges in managing the cost and uncertainty associated with their pension plans. “These concerns take time and attention away from their core business. Increasingly, entities are choosing to remove that risk by transferring the payment obligations to a financially strong insurer,” says Keith McDonagh, Head of MassMutual’s Institutional Solutions businesses.

A pension risk transfer solution helps companies focus on their core business, with the confidence that payments to those individuals continue for the full benefit period. A well-designed pension risk transfer strategy has several important benefits that help companies…

Reduce risk by transferring the uncertainties associated with plan assets and liabilities
Eliminate accounting and funding volatility
Lower expenses by eliminating PBGC premiums and administrative, actuarial and investment management expenses
Enable a greater focus on your core business, increasing overall value for your organization

The most effective pension risk transfer solution is customized to best fit a company’s business needs. Pension risk transfer solutions include:

A single-premium annuity contract with an irrevocable commitment to provide the benefits purchased, which can be funded through cash or a transfer of assets-in-kind
Benefit payments guaranteed to the individuals (or their beneficiaries) through annuity certificates from a highly rated insurer
High-quality customer-focused administrative services, information and communications
Availability of general account and separate account solutions

Once you choose to pursue this path, the selection of an insurer for your group annuity is an important decision that requires the consideration of a number of factors to find the right provider. The factors that matter most when looking for a pension annuity provider are financial strength, long-term value, pension experience, and service excellence.