As an executive with oversight responsibilities for a frozen pension plan you begin to see the light at the end of a long journey – plan termination is near or winding up. You climbed that mountain of pension liability, now fully funded through cash contributions, investment performance and possibly lump sum cashouts to terminated vested participants. One of the last steps is upon you – selecting an annuity provider to take on all the remaining assets and liabilities – thus eliminating the pension plan from your company’s financial statements once and for all.
While the process of selecting an annuity provider might seem straight forward, it is one of the most important fiduciary acts and decisions you will ever make with your pension plan. This article covers some of the responsibilities associated with this critical fiduciary decision. Take care because this decision may or may not carry with it far reaching financial and legal risks.
The U.S. Department of Labor (DOL) provided guidance to fiduciaries on the annuity provider selection process through Interpretive Bulletin 95-1. Some of the highlights of the bulletin include guidance on how to:
- Choose amongst the “safest” annuities available
- Conduct an objective and thorough search (i.e., to not just pick one insurer and go with it)
- Assess the insurer’s asset sufficiency, credit worthiness, claims paying abilities, etc., including:
- The quality and diversification of the annuity provider’s investment portfolio
- The size of the contract issuer relative to the proposed contract
- The level of the insurer’s capital and surplus
- The insurer’s other lines of business/indications of other liability exposures
- The structure of the annuity contract and any guarantees supporting it
There is also a reduction in the size of the disc herniation. cialis overnight no prescription All the ingredients of the capsules sale of sildenafil tablets possess mountain of benefits to destroy various weaknesses of male libido. Green tea, enriched with vital nutrients, helps in lowering sildenafil pills blood glucose level. However, every cheap viagra man must try to satisfy his partner.
- Consider total cost, making sure the contract cost is a reasonable use of plan assets
- Retain any additional expertise needed to fully evaluate insurers
The finer points of DOL Interpretive Bulletin 95-1 cannot be fully addressed in this article. Nonetheless, as a plan fiduciary, here are some of the key takeaways we recommend you keep top of mind:
- Get help from an outside expert who has experience evaluating annuity providers
- Evaluate and receive quotes from at least 3 to 5 of the safest and most reputable insurance companies serving the pension group annuity market
- Insurance companies compete with each other so never select the first insurer with their first price quote (e.g., prices will usually come down at least 2% to 3% when insurers compete)
- The U.S. pension industry will be straining the capacity of the annuity market over the next 5 to 10 years; fiduciaries will need to consider who is taking on more risk than they can handle
- Document, document, document – hindsight usually cannot be used against you if an insurer becomes insolvent as long as you adhered to and documented a thorough and diligent approach to selecting a company from amongst the “safest” available
Remember, although this is a fiduciary decision with financial risks the size of the entire plan, there are also legal considerations. To minimize downstream legal risks associated with an insolvent insurer, or one that simply cannot make timely pension payments for decades to come, everything you do and everything you document during the annuity selection process, might be your best legal defense against unforeseen future events outside of your control during and after the plan termination.
If you come to the point of wrapping up a plan termination, and find yourself looking to select an annuity provider but aren’t sure how to proceed, give one of our pension experts a call to set up a free, no-obligation consultation at 312-762-5945 or email Kathy Tompkins now.
You Might Also Like: