Landmark Pension Settlement Decisions By General Motors and Ford Foreshadow Possible “Sea Change” for Pension Industry

"Insuring pension obligations (specifically legacy liabilities) via a group annuity contract is sure to gain in popularity by companies following the lead of these two powerhouse institutions; though this is not a new approach. The use and cost of an insured approach is something all plan sponsors should be aware of." Dietrich and Associates responds to a game changing event in the US pension marketplace initiated by Ford and General Motors.

  • Share on TwitterShare on FacebookShare on Google+Share on LinkedInEmail a friend
Organizations taking a close look at annuity pricing may be surprised to find that the discount rate available through a fully guaranteed, group annuity contract may be similar to the yield available on a fixed income portfolio of similar duration.

Plymouth Meeting, PA (PRWEB) June 15, 2012

The recent announcements by Ford and General Motors of insuring pension obligations by settling nearly 200,000 participant benefits within their salaried defined benefit pension programs is a game changing event in the US pension marketplace. These decisions mark the first large scale move away from a self-insured approach to managing pension risk, and foreshadow a dramatic increase in the utilization of lump sums and group annuity contracts as important vehicles to support pension de-risking objectives. The GM decision includes a group annuity contract purchase which may cover up to $20 billion of pension liabilities, and represents the single largest purchase ever in the United States by a significant multiple.

While the GM news is groundbreaking in terms of size, the utilization of a group annuity contract to insure pension obligations is not a new strategy. Annuity buy-outs have been used effectively by US plan sponsors for decades to transfer pension liability. The most common and cost efficient approach focuses on legacy liability (specifically retirees) as is the case with General Motors. Jay Dinunzio, a Senior Consultant at Dietrich and Associates points out that, "Organizations taking a close look at annuity pricing may be surprised to find that the discount rate available through a fully guaranteed, group annuity contract may be similar to the yield available on a fixed income portfolio of similar duration. The key benefit of pension annuitization is that it eliminates all associated risks (investment, interest rate, mortality, credit default) and costs (investment management, administration, PBGC insurance) of managing pension assets and liabilities."

In the wake of these transformational decisions by two iconic companies, it is likely that the discourse around settling pension obligations will be significantly heightened in the months and years ahead.

***************************************************************************************************************

Dietrich & Associates, Inc. is a leading provider of group annuity placement services and has developed a new white paper to help pension stakeholders consider some of the more detailed issues related to the group annuity contract placement process. "A Practical Guide for Evaluating Terminal Funding Annuity Placement Providers", is a valuable reference tool for sponsors considering a pension annuity buy-out transaction.

To read the Dietrich & Associates white paper, see attached or click here.
To read the more about the GM and Ford initiatives, including an article in which Dietrich & Associates was quoted, click on the following links:
GM Announces US Salaried Pension Plan Actions
Landmark Prudential, GM Deal Seen as Opening Floodgates for US Pension Transfers


Contact

  • Kate Dietrich-Davis
    Dietrich and Associates
    610-279-9455
    Email

Attachments