Mahoney will be responsible for enhancing client service,
building and leading client teams, and elevating Mercer’s brand in the
market. Jarboe will focus on ensuring client satisfaction and
executing the overall retirement consulting strategy in the market.
Mahoney brings with her more than 25 years of experience as
an actuary, working with large multi-national retirement plan sponsors on
consulting projects. She
has been with the consulting company since 1997 and has most recently served as
the South market retirement leader. Mahoney received a bachelor’s degree in economics
from Dartmouth College. Additionally, she is an enrolled actuary, a fellow of
the Society of Actuaries, and a member of the American Academy of Actuaries.
Jarboe joined
Mercer in 1997 and has more than 20 years of experience consulting to corporate
plan sponsors on pension plan design, funding, accounting, and investment
strategies with a specific focus on risk management solutions. He holds a
bachelor’s degree from the University of Maryland at College Park in
mathematics. He is an enrolled actuary, a fellow of the Society of Actuaries, a
member of the American Academy of Actuaries, and a fellow with the Conference
of Consulting Actuaries.
“We are pleased that Chris and Scott will be taking on
these key South market wide leadership roles,” says Pat Milligan, president, North
America, Mercer. “Their many contributions, coupled with their in-depth
knowledge of the South market, exemplify Mercer’s commitment to providing
innovative, superior services and solutions to our clients.”
By using this site you agree to our network wide Privacy Policy.
Plan
sponsors and advisers should consider the steps that go into a prudent process
for selecting a provider if they want to include a lifetime income solution in
their plans.
Plan sponsors do not have to provide in-plan lifetime income
solutions for their plan participants. However, the topic is heating up, as the
issue of how participants will manage account balances to provide sustainable
lifelong income garners more attention.
Using a prudent process to choose a provider for a lifetime
income solution requires several steps, according to “Fiduciary
Considerations in Selecting a Lifetime Income Provider for a Defined
Contribution Plan,” by Fred Reish and Bruce Ashton, Drinker Biddle
& Reath attorneys who specialize in Employee Retirement Income Security Act (ERISA)
issues. Steven Kronheim, vice president and associate general counsel at
TIAA-CREF is the co-author.
Fiduciaries responsible for selecting annuity providers are not obligated to
follow the steps in the safe harbor regulation, the paper notes. But they
should consider four main areas—the company’s financial strength; the
provider’s evaluation by the rating agencies; commitment and success in the
insurance industry; and diversification of business lines—as part of a prudent
process.
Of these areas, financial information about a provider is
the most important and the section most likely to require the assistance
of an outside professional, says Ashton, a partner in Drinker Biddle’s Los
Angeles office.
“In my experience, not too many committee members are going
to be very knowledgeable about insurance companies,” Ashton tells PLANADVISER.
The largest firms are unlikely to have the expertise in-house to really
determine the strength of an insurer.
Ashton suggests seeking the assistance of an adviser or
consultant with specialized knowledge who is steeped in the industry. “There
are some who understand the insurance industry and the strengths of various
insurance companies,” he says.
In
short, Ashton says, the plan sponsor wants to determine how long the provider
has been in business; the size of the business in serving this market
specifically; and what its reputation is.
“The short answer is no,” Ashton says. However, he notes
that recent
guidance from the Internal Revenue Service (IRS) and the Treasury
Department—IRS Notice 2014-66 and an accompanying letter from Phyllis Borzi,
assistant secretary of the DOL—should give people some comfort that regulators
are trying to allay concerns about these types of products.
“The Borzi letter makes it clear that it is certainly
permissible that you could engage a 3(38) investment manager to make the
determination,” Ashton says.
The plan sponsor and plan committee, Ashton says, can see if
the consultant or adviser will take on the role of a 3(38) investment manager
and have it make the decision about choosing a provider. “That’s what the
structure was in the 2014-66 notice,” he says. “The letter from Borzi pointed
out that if you have an investment manager, it’s making the responsible
decision, and that’s OK.”
The aspects of an insurance company’s finances are quite
detailed, ranging from analysis of the firm’s asset valuation reserve, to
diversification of assets, to liquidity, to Fortune 500 ranking. Drinker
Biddle’s paper has a sample checklist in the appendix for use in evaluating an
insurance company, and specifics on how to access information: Some can be
obtained by asking the insurer; some from independent sources, such as ratings
agencies or the National
Organization of Life and Health Insurance Guaranty Associations.
The following are characteristics that can be used to assess
financial strength:
Bond quality: The National Association of
Insurance Commissioners bond quality can be found on the insurer’s website or
can be requested from the insurer. Investment-grade bonds should be at least
90% of the bond holdings of the company’s general account.
Diversification
of invested assets: Bond
type and duration; preferred stocks; common stocks; real estate; alternative
investments. Questions to ask include: Are the bonds that are owned diversified among
bond types? Are the bond maturities diversified according to particular time
frames?
Insurer’s asset liquidity: This can be found on
the annual statutory statements. Total bonds, total cash and total mortgages
can be found on the assets schedule, while the total reserves can be found on
the reserve analysis.
Fortune 500 ranking: Life and health insurance
companies are listed either as a stock or a mutual insurance company.
Analysis of insurer’s statutory capital: Data on
the capital, surplus and asset-valuation reserve of an insurer can be found in
the annual statutory statements (Blue Book) and from the individual rating
agencies (Fitch, Moody’s, Standard & Poor’s, and A.M. Best).
Plan sponsors should factor in the quality of the company’s
ratings by Fitch, Moody’s, Standard & Poor’s, and A.M. Best. Ratings from
each company should be examined to determine the consistency or lack of
consistency among the rating agencies. Ratings over a five-year period, or
longer, can help determine if the trends have been stable over time or have
fluctuated in economic cycles. Read the report that accompanies each rating
agency’s rating to see if there are adverse comments that suggest vulnerability
to future economic events.
Check
insurance company annual reports and insurance company websites as well as
the individual rating agencies.
Acceptable
ratings for financially strong companies are considered to be A- or higher
by either A.M. Best, Fitch or Standard & Poor’s, and A3 or higher
by Moody’s.
Determine the company’s commitment and success. How long has
the company been in business? The annuity provider should have enough history
to demonstrate the ability to maintain a strong balance sheet through different
market cycles. Drinker Biddle recommends that an insurance company have a
minimum of 10 years in the annuity industry and annuities with living benefits.
How large is the annuity business? This can be determined by
the number of annuity contracts and the amount of annuity assets. A well-established
annuity provider would have a minimum of 250,000 contracts and total
traditional annuity assets of at least $15 billion, with a minimum $5 billion
with living benefits.
Make sure that annuities
and income guarantees are one of the core business lines—at least
10% of annual revenue—of the insurer.
Review
the insurance company’s Form 10-K for the company’s regulatory history and
litigation history, with particular focus on potential impacts to the
annuity business.
Determine the business lines—for example, annuities; life
insurance; group insurance; retirement plans; other—from the insurance
company’s Form 10-K or annual report. While diversification by itself does not
insure that an organization is financially sound, it can help with volatility,
as compared with a single line of business. Any insurance company that has a
single or limited line of business should be closely scrutinized.
Is the
company broadly diversified across different lines of business?
What
is the revenue (in millions) by business line or division for annuities;
life insurance; group insurance; retirement plans; other?