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Webinar Presentation Slides Gone are the days of group annuity contracts only being able to satisfy the plan termination objectives of a pension plan sponsor. Today, there are a wide variety of useful applications for guaranteed institutional annuity contract structures to provide an alternative to traditional fixed income investments. Are you or your pension clients: •Struggling with cost and volatility issues surrounding a defined benefit pension plan? •Considering a liability driven investment strategy that will de-risk the plan investment and allow for stable, predictable funding? •Limited by fixed income funds that only allow for simple duration matching, and expose the plan to cash flow mismatch risks? •Unaware of the variety of customized institutional insurance contract structures available? •Lacking a fiduciary process for evaluating and monitoring the attractiveness of insured pension solutions?
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A New Arrow For The Pension Practitioners Quiver Pension Risk Transfer
Jay Dinunzio Senior
Consultant
©2012 Dietrich & Associates, Inc.. All Rights Reserved.
The Typical Pension Plan
50%private sector DB plans frozen
78% funded Asset Liability Mismatch
50%private sector DB plans frozen
17Employer Contributions
17 years liability duration60/40 equity/debt
30% retiree obligations
©2012 Dietrich & Associates, Inc.. All Rights Reserved.
Funded Status Volatility2
Insured Pension Risk Transfer Solutions are an Attractive Fixed Income Alternative
Guaranteed insurance contracts
Customizable to sponsor objectives Reduce plan sizeImmunize plan liabilitiesPlan terminations
V i t f diff t t tVariety of different structures
Provide certainty to risk focused pension sponsors
Backed by the largest and most well capitalized US life insurance carriers who meet Department of Labor I.B. 95‐1 criteria
©2012 Dietrich & Associates, Inc.. All Rights Reserved. 3
Pension Risk Transfer Solution Spectrum
Higher Cost
Buy‐out Annuity
Buy‐in Annuity
More Risks Transferred
Less Risks Transferred
Fixed Crediting Rate
Lower Cost
Insured Guaranteed LDI
©2012 Dietrich & Associates, Inc.. All Rights Reserved. 4
Retiree Benefit Payments Create Significant Challenges for Pension Plans
Largest plan Negative cash Near zero cash g pexpense
gflow returns
ConsistentMortality improvements
Consistent investment income
What approaches can be used to insure against these risks?
The typical pension plan has 20‐50% of its pension obligations owed to currently retired participants
Annual benefit payments can total 5‐10% of plan assets
©2012 Dietrich & Associates, Inc.. All Rights Reserved. 5
Pension Risk Transfer ‐ Retiree AnnuitizationDifferent Structures for Different Client Circumstances
Buy‐out vs. Buy‐in Group Annuities
Sponsor Circumstances•Well funded plan•Shorter termination horizon
Sponsor Circumstances•Plan is less well funded•Longer termination horizonShorter termination horizon
•Access to cash for full funding•Pension plan small part of P&L•Exit strategy is objective
Longer termination horizon•Company cash not available to fund•Pension plan large part of P&L•Immunization strategy is objective
Retiree Buy‐in AnnuityRetiree Buy‐out Annuity
• Plan Size Permanently Reduced• P&L Impact• Participants Paid Directly By Insurer
• Liabilities hedged with guaranteed annuity contract
• No P&L impact• Participants paid by Plan TrustParticipants paid by Plan Trust
Removes Plan’s largest ongoing expenseReduces plan’s negative cash flow One time payment includes embedded costs
©2012 Dietrich & Associates, Inc.. All Rights Reserved.
costs5‐10% premium over GAAP Liability ValueMortality guarantee
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Pension Risk Transfer ‐ Indexed Guaranteed Investment ContractUnable or Unwilling to Lock‐in Annuity Costs ‐ Insured LDI
Insured LDI• Insurance contract guarantees
same pension discount curve used to value liability
• No financial penalties to exit
• Fee Based (pay as you go)• Plan retains risks of actual flows
vs. expected cash flowsNo financial penalties to exit
Tailored specifically to plan liability cash flowsTailored specifically to plan liability cash flowsInsurance contract alternative to market valued bond fundsPrecise hedge against asset/liability movementsFully transparent with no embedded costs
Guarantee Solves Key Challenges Associates With Investing to
©2012 Dietrich & Associates, Inc.. All Rights Reserved.
Match Pension Liability Indexes
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5 Important Questions To Consider
1. 1. Is your pension program frozen?
22. . Is plan termination the ultimate pension objective?
3. 3. Are you concerned with pension funding volatility?
44. . Are you looking to de‐risk the plan investments via liability driven investing?
55. . Are you unfamiliar with insured pension risk transfer solutions?
If the answer to one or more of the questions above is “YES” then a Pension Risk Transfer specialist
©2012 Dietrich & Associates, Inc.. All Rights Reserved.
Pension Risk Transfer specialist may be able to help you
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Question and Answer Session
*Any questions not answered during the Q & A session will be answered individually after the webinar concludes.
©2012 Dietrich & Associates, Inc.. All Rights Reserved. 9
Thank you for attending
Visit www.dietrichassociates.com for more information.
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©2012 Dietrich & Associates, Inc.. All Rights Reserved.
Stay tuned for our upcoming webinar on The Dietrich (k) Annuity™.
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