As a lifelong soccer player and licensed coach, I find myself incorporating lessons from the field into my day-to-day life. 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.
You might wonder how my love for soccer and the lessons I learned on the field connect to my pension risk transfer (PRT) work at Nationwide. With a PRT, the transition experience is critically important to the success of the overall risk transfer. In order to ensure a successful transition, you need to work well with a variety of players and develop a solid game-plan.
With that in mind, I’ve identified a six-step playbook for defined benefit (DB) plans. Each of the six simple steps are designed to help plans navigate the complex series of transactions that make up a PRT.
Step One: Assemble a Winning Team.
In sports, there are a number of different positions and roles to play on a team. The same is true with PRTs.
With an experienced DB plan consultant playing the role of a coach, other key team members include actuaries, legal counsel, plan sponsors, recordkeepers and plan administrators. Each player pulls on their specialties to participate in a process that will ultimately reduce financial and operational risks for the plan sponsor.
Step Two: Choose a Strategy.
When my soccer team steps on the field for a game, I know that no two games are the same. Similarly, each PRT is unique and requires individualized plays.
The game-time strategy may vary and include a lump-sum window, lift-out, buy-in or plan termination. A number of factors influence the game-time strategy, including but not limited to participant demographics, the plan’s level of funding and the DB plan’s benefit formula.
Step Three: Analyze and Adjust.
After the strategy is determined, the recordkeeper, actuary and the plan sponsor’s finance department need to analyze the current plan’s assets and liabilities.
When conducting the analysis, there are two issues that need to be considered. First, 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? Second, what impact will the PRT have on the plan sponsor’s long-term financial liabilities and remaining DB plan’s funded status?
Step Four: Gather 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.
Data is important for insurers who respond to request for proposals (RFPs) for a group annuity because they need the most accurate and robust plan participant data available to accurately price their product. Necessary data to gather includes information about participants (age, address, form of payment) as well as pertinent information about designated beneficiaries and survivor benefits.
This responsibility most often falls to the recordkeepers. Beyond collecting data, recordkeepers and other team members may need to complete a clean-up project as the data must be converted to electronic forms.
Step Five: Choose an Annuity Provider.
All PRT strategies, aside from lump-sum windows, will include issuing an RFP to insurers to find the best group annuity contract. At this point in the game, the Department of Labor (DOL) acts as 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.
Step Six: Communicate.
Communication with all of the players is so important. Internal communication among the various team members needs to occur in a timely and concise manner. This will make the external communication process smoother.
External communications to plan participants are equally important because it will help provide peace of mind. Further, depending on the game strategy, certain participant communications are legally required to include specific content and must be shared by particular deadlines.