Sun Life Assurance Company, the wholly-owned subsidiary of Sun Life Financial (Sun Life), signed a C$150 million annuity policy with the Canadian Wheat Board (CWB), which transfers one of the largest wheat and barley marketers in the world’s defined benefit pension liabilities to Sun Life.
The agreement, which made for the largest single-day purchase of inflation-linked annuities in Canada, is known as an “annuity buy-in” and is becoming increasingly fashionable for companies seeking to focus on their core operations rather than juggle the arduous task of managing pension obligations.
However, not all parties involved in annuity buy-ins feel they are beneficial, namely, the retirees to whom the pensions are owed. In October of last year, Verizon wireless entered into a $7.5 billion annuity buy-in with Prudential Insurance Company of America, which resulted in a small but vocal group of retirees filing a lawsuit.
The worry among some retirees is that when their pensions are converted into annuities they are no longer covered by a Pension Guarantee Corporation and were the insurance company to fall on financial hardship their benefits would be clipped.
Dissent, however, is mostly muted as insurance companies who enter into these agreements are mostly well-capitalized.
Sun Life’s Defined Benefits Solutions, which was formed in 2008 to handle such agreements, is well-versed in the practice, having been a party to the largest Canadian annuity buy-out in 2011.