Pension plan liabilities continue to grow alongside an aging population. For many defined benefit (DB) plan sponsors, the need to find a way to match those liabilities is leading them to consider de-risking their plans. Alison Cooke Mintzer, editor-in-chief of PLANSPONSOR and PLANADVISER, spoke with MetLife’s Head of U.S. Pensions Wayne Daniel about the options and solutions for plan sponsors embarking on a de-risking strategy.
PS: Wayne, you were recently named head of U.S. Pensions, which is part of the Corporate Benefit Funding (CBF) business unit at MetLife. You’ve been with MetLife for some time, so what made this opportunity attractive?
Daniel: Having spent the last few years leading MetLife’s pensions operation in the U.K. and Ireland, and serving as part of the CBF leadership team, I am familiar with the U.S.-based team and the great work they do here. It was an opportunity to bring my 25-plus years of global insurance experience in pension risk transfer, reinsurance and longevity markets to a very strong team that I think is well-positioned for future growth. The U.S. pension de-risking market had record years in 2012 and 2013, and there are bullish predictions that the sales growth in the market—the de-risking activity—will continue, so obviously it’s an attractive time to take on the leadership of the U.S. team.
As you may know, pension risk management—which includes both pension risk transfer and risk mitigation strategies—is a core element of MetLife’s business and has been for over 90 years. According to LIMRA’s 2013 year-end sales report, MetLife has a 45% market share and is a leading pension risk transfer provider. I’m looking forward to maintaining and growing that share in the coming months and years.
PS: Coming from the U.K. perspective, what aspects of the U.S. landscape are distinct from those in the U.K.?
Daniel: Well, both have idiosyncratic differences, but there are similar overall drivers of demand.
There is tax law and pension regulation that is specific to each, but fundamentally the challenge that the industry and the plan sponsors are facing is the same.
We have huge amounts of defined benefit liabilities that have built up over the past few decades, and plan sponsors on both sides of the Atlantic have the responsibility for ensuring that those liabilities are matched. The de-risking process is addressing the issue as it removes the volatility and unknown expense of managing pension liabilities from the plan sponsor.
In the U.K., we have moved to mark-to-market accounting faster and further than the U.S., and this has forced earlier recognition of the true cost of these DB promises that were made by corporates and plan sponsors.
Also, in the U.K., plans had to implement more realistic rates of improvement in mortality, further increasing the pressure on defined benefit plans.
Now, we see similar structural features driving de-risking demand in the U.S., as the move to mark-to-market accounting is underway. We also see, with new mortality tables, additions to the costs and uncertainties for plan sponsors.
Plus, on both sides we’ve seen the regulatory cost of operating a defined benefit plan increase. In the U.K., we have Pension Protection Fund (PPF) levies. In the U.S., we have the Pension Benefit Guaranty Corp. (PBGC). Those premiums are projected to increase for the next few years, further adding to the cost for plan sponsors.