Defined benefit pension scheme buy-in risk transfers have become common in the UK but have not featured as a solution in the US.
This could be changing with the completion of the first buy-in transaction in the US by Prudential Retirement, a unit of insurer Prudential Financial.
A small deal compared with some that have been executed in the UK, the transaction involved a $75m pension risk transfer transaction for Hickory Springs Manufacturing Company, one of the largest furniture manufacturers in the US.
There are significant differences between a pension buy-out and buy-in.
With a buy-out risk, all pension scheme assets and liabilities are transferred to a life insurer providing employers with a complete break from future pension liabilities. With a buy-out, a life insurer writes policies in the names of individual scheme members involved.
With a buy-in, an insurance company issues a policy covering benefits for scheme members involved. The policy is in the name of the scheme’s trustees and is effectively held as an asset of the scheme to cover liabilities related to, for example, inflation, investment, interest rate and mortality risk.
