Important considerations for pension sponsors interested in removing pension liabilities from their corporate balance sheet.

1. Corporate Annuity View – February 2011
Group Annuities: Top 5 Things Pension Sponsors Need to Know
By Jay Dinunzio*
Single premium group annuities (aka annuity buy-outs, terminal funding/annuities, GAC’s) are well
established, effective vehicles that allow a pension plan to remove obligations from its balance sheet.
The following create an environment where group annuities deliver real value to sponsors increasingly
interested in solutions:
 The Pension Protection Act of 2006
 Movement towards mark to market pension accounting
 Unprecedented capital markets volatility
 Large company contributions
 Popularity of liability driven investing
 Institutional annuity product innovation
 Increase in plan freezes and need for “exit strategies”
 Robust UK($10-$20 Billion per year) annuity market
Surprisingly, there is a general lack of awareness of these products. However, market
conditions and clear demand are increasing their marketability. Given these factors here are
the top five things pension sponsors need to know about group annuities:
#1-It’s not a matter of if plans buy annuities, it’s more a matter of when. Plan sponsors will
likely secure retiree benefits with an insurer. While annuities in recent years have traditionally been
purchased in conjunction with a plan termination, there is no reason why a plan sponsor could not or
should not consider more strategic purchases prior to terminating the plan.
#2-Custom, custom, custom. Terms can be customized to the unique needs of the plan allowing
small and middle market buyers the ability to access solutions designed specifically for them,
something that traditional asset managers only offer to their largest clients. The ability to customize
group annuity contracts make these products a viable potential solution for any pension plan
regardless of size or funded status.
#3-Spot rate pricing. Institutional guaranteed insurance products are typically priced using daily
spot rates. While each contract’s cost is dependent on a variety of specific factors, generally speaking
guaranteed products provide yields somewhere in the range of US Treasuries plus 50-150 basis
points.
#4-Well established marketplace. While sales tend to ebb and flow, over the last dozen years
there have been 300-400 pension annuity contracts sold annually with total annual sold premium
ranging from $1 billion to $4 billion. Some estimate sales volumes may increase 400% in coming
years.
#5-New insured solutions coming to market. Guaranteed separate account products are readily
available that offer additional protections in the unlikely event of insolvency. Additionally, buy-in
annuity products (popular in the UK) are investment contracts that allow sponsors to dedicate assets
to fund covered benefits without formally removing the obligations from the sponsors balance sheet.
There are approximately 10 carriers currently issuing new institutional insurance products.
Only the largest, most highly rated, and well capitalized US life companies issue these
products.
Many are betting on, and investing in a resurgence of these products.
CorpAnnuity.com
©Copyright 2011 IST Annuity Services. All rights reserved.

2. Sources and Links
Retirement Plans
Employees Increasing Retirement Nest Eggs – On Wall Street
More at risk of missing retirement goals – Employee Benefit News
GE closes DB plan for salaried employees – Pensions & Investments
Retirement Looms: Time to Get Nervous – Bloomberg
Slow and Steady Saving Still Pays – Marketwatch
$1M Retirement Nest Egg Attainable, Consumer Reports Finds. – Financial
Planning
401(k) Participants Shun Company Stock - CFO
Annuities in the News
Building a Cheaper Annuity – WSJ
Index annuities are a safety trap - Money
Future Brightens for Struggling Annuities – On Wall Street
Regulation/Politics/Accounting/Economics
Big corporate DB plans see deficit decrease – Employee Benefit News
Given 'devil's bargain,' Treasuries should be exorcised from portfolios:
Gross – Investment News
Top 100 pension funds' assets up 6.2% in quarter – Pensions &
Investments
Supremes Mull Pension Deception – CFO
Married Couple's Guide To The New Estate Tax Law - Forbes
Insurers/Companies in the News
At AIG, Focus Returns to Selling Insurance – WSJ
Genworth Ends Sales of Retail, Group Variable Annuities – WSJ
AIG Repays Final Bit of NY Fed Debt – WSJ
Fidelity, MetLife Lifetime Income Annuity Hits $1B – On Wall Street
Manulife paying price for lack of hedging – Investment News
AIG MOVES CLOSER TO RECAPITALISATION – Financial Times
Insurers Sued Over Death Bets – WSJ
AIG Stock's Unlikely Comeback - WSJ
*About the author
Jay Dinunzio is an Associate Vice President of Retirement Services at USI Consulting Group. He has
over 12 years of experience working with institutional retirement plan sponsors of both defined benefit
and defined contribution programs. Much of his career has been spent providing risk management
solutions to defined benefit pension sponsors, including single premium group annuities, as well as
bundled and outsourced pension administration arrangements. Additionally, Jay has worked closely
with various defined contribution stable value investment products. Connect with Jay:
http://www.linkedin.com/in/jaydinunzio
The views expressed in this paper are the authors own and do not represent those of USI Holdings,
Inc. or USI Consulting Group.
CorpAnnuity.com
©Copyright 2011 IST Annuity Services. All rights reserved.