Institutional Markets: Corporate Annuities
Pension plans expose sponsors to many risks as well as expenses, administrative headaches, etc. Hundreds of frozen plans continue to present challenges and companies are looking for answers. Transferring the pension obligations to an annuity provider can alleviate these issues.
Changing asset values can hit pension plans hard. Moreover, the Pension Protection Act (PPA) forces companies to "minimum fund" their plans with contributions to underfunded plans. And then there's FAS 158. Now the impact of volatile asset values and changes in liability discount rates make levels of underfunding unstable.
Issues with frozen plans have to do with risks, which can be off-loaded:
- Asset value fluctuations in financial markets
- Accounting rule, legal and regulatory changes
- Financial statement volatility
- Changes in demographics and actuarial assumptions
Corporate annuities can be used to closeout frozen plans once and for all. Sooner or later most frozen plans take a close look at doing so. It doesn't have to be done all at once. For instance it often makes sense to take out retirees as a first step.
We can help develop solutions and assist in the evaluation of various options to:
- Remove liabilities
- Improve favorable reviews by credit and rating agencies
- Increase flexibility with future payments
- Eliminate PBGC premiums
- Possible tax benefits
Closeouts can be structured in many ways. We can help with participating options, strategies that can be implemented over time and/or partial closeouts. International plans can also be incorporated into the overall strategy.
Plan sponsors need to get quotes and be ready when the time is right. For many the time is now.
We can help design and implement cutting edge solutions with the best financing options available.