The 7 Steps
to Successful
Pension Risk
Transfers
STEPS TO HIGHLY EFFECTIVE
PENSION DE-RISKING
WHAT ARE THE 7 STEPS TO SUCCESSFUL
PENSION RISK TRANSFERS?
We think of Pension Risk Transfers as a journey. And in any journey,
it is useful to know your starting point. You also need to have a clear
destination in mind. Once you know your starting point and destination, it
informs many of your choices on your journey to Pension De-risking. We’ll
take you through some of those details now.
1
KNOW YOUR
STARTING POINT
Your firm has a number of factors impacting
its financial health. One of these factors is your
pension plan. The plan itself is subject to many
factors which affect its well-being.
Our journey begins with a realistic and thorough
assessment of the pension plan to determine its
financial risks and costs to your firm.
2
HAVE A
DESTINATION
IN MIND
Once you fully understand the costs and risks
associated with your pension plan, you can
determine your destination. Often, that desired
destination is to undertake a Pension De-Risking
transaction. Once you’ve made your decision, the
next step is to consider the required plan changes
and how they will affect you and your employees.
Communicating with your employees around your
decision and the security of their benefit may be one
of the most important success factors of your journey.
3
CHOOSE
YOUR PATH
Once you understand where you are today and where
you’d like to go, your next step in the journey is
to determine how you’d like to manage your
pension risk.
One path is to look at your ability to manage
risk within your current plan. You can choose
to redesign the plan, changing how the benefits
are accrued or by freezing the plan. You may also
choose to increase funding to the plan or decide to
implement a new investment strategy.
The other path is to look at your ability to manage
risk outside of the plan. Deciding to do so
primarily involves transferring some or all of the
plan’s risk to a third party. This can be done in
one of four ways: through a buy-in, longevity
reinsurance, lump sum or buyout transaction.
Buyouts transfer the obligation of the plan from your
firm to an insurer and are the most common choice.
BUY-IN
LONGEVITY
REINSURANCE
LUMP
SUM
BUYOUT
4
MAP YOUR
COURSE
Assuming the path you’ve chosen is a full or
partial buyout, there are a number of steps that
you can take to make the process simpler and more
efficient.
First, prepare. Start early, build your team and decide
the rules of the road.
PREPARATION:
• Appoint internal team
• Define transaction objectives
• Review data and plan provisions
• Institute a governance structure
Next, choose your advisors to help you solidify your
decision and guide you on your journey. Then, gather
information from insurers.
ADVISORS:
• Select advisors:
– Settlor
– Fiduciary
• Decide on communication strategy at all levels
FEASIBILITY:
• Develop RFI with advisors
• Gather feedback from insurers:
– Deal structure and commitment
– Price discovery and funding level
– Premium payment
– Data integrity
– Timelines (agreements, contracts,
implementations)
Lastly, finalize the structure of the transaction.
FINALIZE DEAL STRUCTURE:
• Full or partial buyout
• General account or separate account
• Single-insurer or multi-insurer
5 KNOW YOUR
CARRIER
Now that you’ve chosen your carrier, let’s get
to know them better. It’s helpful to understand a
little bit more about how they work. We’ll focus on
just a few key aspects of the inner workings.
First it’s important to note that DOL 95-1 provides
guidance that you will need in selecting a provider
for your transaction.
PROVIDING CARRIERS
WITH CLEAN AND
COMPLETE DATA
IS KEY
Providing the carrier with clean and complete data
will be important to the success of your transfer.
Once the data and plan specifications are received,
the carrier will be able to provide you with a price
or premium for the annuity. In addition to cash, the
carrier may be able to take existing plan investments.
Lastly, the carrier will have an implementation
process to ensure a smooth transition from the plan
administrator.
Once you’ve decided to undertake a Pension
Risk Transfer, you’ll need to have an internal
and external communications strategy in
place.
Knowing when, how and what you will communicate
to your plan’s participants and other stakeholders is key.
6
COMMUNICATE
YOUR PLANS
INTERNAL
AND EXTERNAL
COMMUNICATIONS
7
TAKE THE
JOURNEY
Our final step is simply putting one foot in
front of the other and taking the journey.
• Execute your plans
• Step through actions required
• Stay focused on your end goals
Remember, each journey is unique. Remain flexible
and adjust your plans as needed.
It’s also important to remember why you’ve decided
to take this journey: to remove this distraction from
your firm. Transferring your vested pension promises
to pension experts can improve the financial security
of your plan participants.
HELP IMPROVE THE
FINANCIAL SECURITY
OF YOUR FIRM
AND
PLAN
PARTICIPANTS
The 7 Steps to Successful Pension Risk
Transfers
1. Know Your Starting Point
2. Have a Destination in Mind
3. Choose Your Path
4. Map Your Course
5. Know Your Carrier
6. Communicate Your Plans
7. Take the Journey
Putting these 7 steps into practice will
hopefully lead you to an effective and
successful pension de-risking transaction.
Metropolitan Life Insurance Company
200 Park Avenue
New York, NY 10166
www.metlife.com
1606-572883 CS
© 2016 METLIFE, INC.
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