The success of a pension risk transfer is dependent on working well with a variety of players and developing a solid game plan. Paula Cole, head of Nationwide Financial’s pension risk transfer business and “lifelong soccer player and licensed coach,” writes in a recent blog post from Nationwide that she’s applied the lessons she’s learned on the soccer field to her PRT work.
“I find myself incorporating lessons from the field into my day-to-day life,” wrote Cole. “From my first days on the pitch to days spent improving players in the game, I learned working well with others is critical to successful execution.”
Cole has created a six-step playbook for defined benefit plans to help navigate the intricate series of transactions that make up a PRT.
1. Put the Right Team Together
Like with soccer, there are several different positions and roles to play on a team with PRTs. An experienced DB plan consultant plays the role of a coach, while other team members include actuaries, legal counsel, plan sponsors, record keepers, and plan administrators. Each player offers their expertise to reduce risks for the plan sponsor.
2. Select a Strategy
Just as no two games are the same, each PRT is unique and requires customized plays. While the game-time strategy may vary, they almost always include a lump-sum window, lift-out, buy-in, or plan termination. Several factors can affect the game-time strategy, including participant demographics, the plan’s level of funding, and the DB plan’s benefit formula.
3. Analyze & Adjust
Once the strategy is decided, the record keeper, actuary, and plan sponsor’s finance department need to analyze the plan’s assets and liabilities. During the analysis, two issues must be considered: does the plan sponsor have adequate funds and cash flow to finance the preferred PRT strategy, or does the DB plan itself have adequate funds to support the strategy? And what impact will the PRT have on the plan sponsor’s long-term financial liabilities and the remaining DB plan’s funded status?
4. Collect Data
Collecting plan and participant data for a PRT can be likened to keeping track of game-day stats to prepare for the next game. Insurers responding to requests for proposals for a group annuity need the most accurate plan participant data available to accurately price their product. Necessary data to gather includes information about participants as well as pertinent information about designated beneficiaries and survivor benefits.
5. Find an Annuity Provider
Aside from lump-sum windows, PRT strategies include issuing an RFP to insurers to find the best group annuity contract. At this point in the game, the Department of Labor is a referee. Choosing the right group annuity for participants is a fiduciary act and plan sponsors must keep in mind the six factors laid out by the DOL when reviewing RFP responses.
Communication with all the players is crucial. While internal communication among the various team members needs to occur in a timely and concise manner, external communications to plan participants are equally important. Depending on the game strategy, some participant communications are legally required to include specific content and must be shared by deadlines.
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For more news, information, and strategy, visit the Retirement Income Channel.