Three insurers are helping two large employers dispose of $2.6 billion in pension benefits obligations.
Prudential Financial Inc. has agreed to help another insurer, Hartford Financial Services Group Inc., shift responsibility for $1.6 billion in pension benefits through one pension risk transfer deal.
Two life insurance companies helped Accenture settle $1 billion in pension obligations through a separate deal.
(Related: S&P Eyes Pension Risk Transfer Business)
The two life companies involved in the Accenture pension risk transfer deal are American General Life Insurance Co., which is a subsidiary of American International Group Inc., and Massachusetts Mutual Life Insurance Co.
Pension Risk Transfers
A “pension risk transfer” is really the purchase of a group annuity designed for an employer that wants to shut down a pension plan. The employer uses the group annuity to replace the retirement benefits the pension plan once promised. The insurer that writes the group annuity takes responsibility for providing the benefits off the employer’s shoulders.
Low interest rates now make earning the kinds of returns needed to support the pension obligations challenging.
Many employers have responded by closing pension plans to new members. Those employers have been counting on time to shrink their pension obligations in a natural, gradual way, without much red tape.
This year, the federal government is increasing pressure on employers to dispose of pension plans, by increasing the premiums a pension plan sponsor has to pay for benefits insurance from the Pension Benefit Guaranty Corp.
The Hartford Deal
Hartford is now responsible for providing $5.6 billion in pension benefits for about 42,000 current and former employees in the United States. The firm has now agreed to transfer about $1.6 billion of the obligations to Prudential, effective June 30.