Ben Mattlin takes a look at pension risk transfer in an article for ThinkAdvisor published Sunday, December 20. As folks are living longer and 10,000 boomers retire every day, the need for durable retirement income solutions becomes more and more critical. Mattlin points to a recent trend in corporate pensions toward sharing risk with insurance companies or off-loading the risk entirely. He says that companies like Lockheed Martin, FedEx, Raytheon, Alcoa and others “have transferred billions of dollars worth of pension liabilities to insurance companies through group annuities,” and the trend is growing.
But can corporate pensions de-risk with annuities, or do they introduce different kinds of risks to pension holders? What happens when an insurance company can’t meet their obligations? Mattlin points out that concerns about insurance company solvency may be be a bit overblown. Protections have been established for annuity owners in every state and the District of Columbia. Plus, annuity providers are limited in terms of where they may invest, and he says that “Few annuity carriers ever actually default, though. Even the AIG debacle of 2008 involved only the parent company, not the annuities operations…”
Mattlin wraps the article with this quote from RetireOne CEO David Stone: “There are many other investments that present a greater risk. [Annuity protections] provide a level of comfort … that does not exist with many other investments.”
