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
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.