Products May 27, 2015

Prudential Unveils PRT Guidebook

A new white paper from Prudential Retirement outlines steps plan sponsor clients can take to prepare for a future PRT transaction.
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Prudential says a surge in high-profile pension buyouts may prompt more plan sponsors to consider what a pension risk transfer (PRT) could do for their defined benefit (DB) plans.

The first half of 2015 has already brought billions of dollars in these transactions—concentrated mainly among large and mega plan sponsors—and since 2012 pension risk transfers have totaled $49 billion. Some examples include transactions executed by Motorola, Verizon,  Bristol-Myers Squibb and General Motors.

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Overall, the economics are still ripe for PRT, presenting an ongoing opportunity for sponsors and advisers to work together to take control of pension risk. In this environment, Prudential has rolled out a white paper dissecting the three basic types of buyout transactions plan sponsors can consider—including a full buy-out, in which the plan is terminated and annuities purchased for all participants; partial buyout, in which annuities are purchased only for specified liabilities, typically current retirees actively drawing benefits; and, finally, a partial buy-out with spin-off and termination, through which the plan is ultimately terminated.

According to Prudential Retirement, the white paper can help plan sponsors identify which path forward may be best—and once the sponsors decide what type of buyout they want to pursue, they can begin the process of transacting, which is outlined in detail through four phases.

“Corporate sponsors are realizing that now is an ideal time to execute a pension buy-out, given the continued funded status volatility, new mortality assumptions that will increase DB plan liabilities, and increasing Pension Benefit Guarantee Corporation premiums,” says Peggy McDonald, senior vice president and actuary on Prudential Retirement’s pension risk transfer team. “Executing a successful buy-out requires a significant amount of coordination among several stakeholders, which means it’s never too early to prepare, whether a buy-out is imminent, a few years away or only a consideration.”

Products May 27, 2015

MetLife Offers Longevity Annuity for DC Plans

A new deferred income annuity from MetLife is designed specifically for the institutional market and is available for qualified defined contribution (DC) retirement plans.
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Roberta Rafaloff, vice president, institutional income annuities, MetLife’s institutional retirement group, tells PLANADVISER there are other products that meet the definition of a qualified longevity annuity contract (QLAC), “but we believe we’re the first insurer to offer a group product for the institutional market. Other products have been for retail investors, but we will have a relationship with plan sponsors.”

Rafaloff explains that the QLAC is not an investment option. “We like to distinguish annuities from investments; they are insurance,” she says—so the QLAC will be included as a distribution option from the plan. When a participant reaches retirement, she will have the option to put part of her assets into the QLAC. Those assets will leave the plan and go to the insurance company to be invested in a general account until payments begin.

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The Treasury Department issued final rules in July 2014 allowing retirement savers to use the lesser of 25% of their account balances or $125,000 to purchase a QLAC, which will not be included in the calculation of required minimum distributions (RMDs) that are required to begin after savers reach age 70 ½. Payments from QLACs can be deferred until age 85, at the latest.

“We believe products like QLACs address a very specific need that should be met,” Rafaloff says. “Excluding that portion of a participants balance from the RMD calculation will [decrease the RMD, allowing] more money to remain in the DC plan with potential to grow.”

Rafaloff adds that QLACs provide flexibility for participants in designing retirement income strategies. “DC plan participants can, for example, have both immediate income through systematic withdrawals for a portion of their balance, and guaranteed income for the rest of their lives once the QLAC begins payment.” She notes that by deferring QLAC payments to a later age, participants can maximize payment amounts. “They can be sure to have a guaranteed income stream when other assets may run out.”

Payment options for the MetLife Retirement Income Insurance QLAC include both Lifelong Income for One, which guarantees the participant will receive fixed payments for as long as he or she lives, and Lifelong Income for Two, which guarantees that the participant and his or her spouse will receive fixed payments for as long as at least one of them lives. The MetLife Retirement Income Insurance QLAC also offers an optional inflation protection feature, which increases a participant’s income payments each year. In an effort to protect a participant’s payments from an increased cost of living, he or she can choose to have them increase by 1%, 2% or 3% each year.

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