Leveraging Assets-in-Kind transactions to aid pension risk transfers

Ian Cahill

By Ian Cahill, FSA, MAAA, CERA
Head of Pension Risk Transfer Pricing & Underwriting for Institutional Solutions at Massachusetts Mutual Life Insurance Co. (MassMutual).
Posted on Jun 11, 2021

When intermediaries approach us to provide a proposal for a group annuity buy-out for their clients’ pension plans, we want to ensure we provide a competitive and mutually beneficial solution. Also, we understand that by the time a proposal is requested, years have been spent carefully planning how to best manage, reduce, and eliminate the risks associated with the pension plan.

Last October in the “The Pension De-risking Journey — What Assets Should I Be Holding?” roundtable discussion at the Pension& Investments Managing Pension Risks and Liabilities Conference, we discussed a method of funding an annuity purchase which incorporates the same meticulous detail and could lead to significant savings: Assets-in-Kind Transfers. As a frame of reference, we’ve been able to save our customers over $20 million dollars in the past year or so while also managing the additional risks associated with the transaction. A summary of the conversation is available here.

As you may know, an Assets-In-Kind Transfer, called an AIK Transfer, is a method of funding an annuity purchase through which an insurer accepts assets as payment for the annuity purchase in lieu of cash. As we note in our recent white paper, Mitigating group annuity buy-out risks with Assets-In-Kind Transfers,” AIK transfers can eliminate certain costs and risks for both the insurer and the buyer including delay costs, market interest rate risks, and credit spread risks. On the surface, this may sound relatively simple, however, there are many factors to consider.

On the most basic level, an AIK Transfer is a mutually beneficial option when the plan sponsor holds specific investments in the plan that are appealing to the insurer. What’s more, the insurer understands that their costs and risks are diminished — such as the delay costs associated with investing large sums of cash in the market and exposure to interest rate risks and credit spread risks.

With consideration for these factors, the insurer generally provides a discounted premium quote for bids that involve AIK Transfers. Given the size of many of these transactions, the savings can equate to millions of dollars.

To better understand these costs and risks, and insurer considerations when negotiating the terms of an annuity buy-out, please refer to our white paper, Mitigating group annuity buy-out risks with Assets-In-Kind Transfers.”

We would appreciate the opportunity to partner with you and your pension plan customers to understand their group annuity needs. For more information, please contact us.

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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.