An increase in the protection limit for defined benefit pension plan members’ assets invested in annuities is making it easier for plan sponsors to de-risk, says Mary Kate Archibald, a principal at Eckler Ltd.
Assuris, the not-for-profit organization that protects a portion of retirement benefits from annuities in the event of an insurer’s insolvency, now covers up to $5,000 — or 90 per cent, whichever is higher — of a plan member’s monthly benefits from a buyout annuity. For buy-in annuities, the coverage is now 90 per cent of the monthly benefits payable to each member.
“This is a pretty significant increase to the coverage, which is welcome news for plan members and plan sponsors,” says Archibald, adding the key benefit for members is the security of knowing that, if the current annuity provider becomes insolvent, there will be a back-up in place.
“It’s great for plan sponsors looking to transfer that risk to know this coverage is in place — and it’s in place for future insolvencies of the insurer as opposed to future annuity purchases, so it would apply even if the purchase was made in the past.”
The previous protection limit for buyout annuities — the greater of $2,000 or 85 per cent of a plan member’s monthly benefits — meant that, if a plan sponsor had many members with monthly benefits of $2,000 or more, they’d likely tranche the pension in order to provide more coverage for members, says Archibald.
“The downside of that was it generally cost more and it was less convenient. Now, with the enhanced coverage, plan sponsors will be able to select the best quote and know one insurer can facilitate the annuity purchase and still have the coverage in place that’s needed.”