A Pension Risk Transfer Choice Is More than Financials

Plan sponsors want more than a payout annuity provider when they go looking for an insurer. 

By Jill Cornfield | December 11, 2015
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Ongoing de-risking activity in pension plans is cutting a swath across market sectors, locations and firm sizes as plan sponsors make a move to transfer benefit payment obligations from their defined benefit plans to insurance companies.  

Selecting an insurer for pension risk transfer is a big decision, and a big commitment. Among other factors that motivate plan sponsors to unload the risk of a pension plan are rising Pension Benefit Guaranty Corporation (PBGC) premiums. The insurer’s financials are just a starting point. Plan sponsors need to assess how its retirees are going to be treated, educated and communicated with for years to come.

Plan sponsors get an overview of these critera in “The Three Pillars of Exceptional Service Delivery,” a series of white papers from Prudential, that contends that the service in providing pension risk transfer has evolved. From a focus on the standard operational practices— data processing, retiree on-boarding, payment processing, record maintenance—providers now emphasize consultative practices: the insurers’ capabilities and communications with retirees before, during and after the plan transition.

“Insurers are not only assuming commitments to deliver a dependable stream of income to retirees, they are also promising to offer administrative services beyond issuing monthly payments,” explains Dave Casto, head of Pension Risk Transfer Service Delivery at Prudential Retirement. “Companies have recognized that their reputations are on the line if the selected insurer isn't committed to providing retiree services at least as good or better than the retirees enjoyed with the plan sponsor.”

The three papers focus on a different aspect of service delivery: retiree communication and education, transaction and transition, and consultation and commitment. “Exceptional service delivery” is defined as an insurance company’s ability in four areas.

NEXT: Addressing the needs of plan sponsors and their retirees