The U.S. pension risk transfer landscape has experienced significant growth over the past decade, but some are questioning whether the bevy of insurers entering the market all provide the safest available annuity option for pension plan participants.
The questions have arisen following the entry of insurance companies into the PRT market that have been backed by alternative money managers, which allows the insurers to more easily access private assets that carry the promise of higher returns.
Over the past 10 years, the pension risk transfer market has seen a significant influx of insurance companies selling group annuity contracts to U.S. corporations eager to transfer the risk of their pension plan liabilities.
As recently as 2014, there were only eight insurers selling annuity contracts, including long-established insurance industry stalwarts such as Prudential, Massachusetts Mutual Life Insurance Co. and MetLife Inc. There are now 19 insurance companies in the market. By year-end, industry experts say an additional insurer will be joining the market, with at least two more expected to join in early 2023.
Among the most visible of the newer insurers is Athene Holding Ltd., which was established by Apollo Global Management Inc. in 2009. Previously a minority shareholder in the company, Apollo completed an $11 billion deal to fully acquire the insurer in January.
It was the latest in a flurry of mergers, acquisitions and strategic relationships completed between alternative managers and insurers that dominated headlines in 2021.
However, controversy was not far behind, and concerns regarding alternative manager-backed insurers reached its peak in February, shortly after the closing of the Apollo-Athene deal, when Sen. Chris Murphy (D.-Conn.) introduced the Pension Risk Transfer Accountability Act of 2021.
It was ultimately included in the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act, or RISE and SHINE Act, which was approved by the U.S. Senate Health, Education, Labor, and Pensions Committee in June. The bill could ultimately be part of a SECURE 2.0 retirement legislative package.
"The Department of Labor hasn't updated their PRT guidance in almost 30 years, and that creates serious risk for workers who count on the security of their pension savings," Mr. Murphy said in an emailed statement. "Private equity firms looking to turn a quick profit shouldn't be allowed to buy out pension liabilities, transfer them to riskier investments, and strip beneficiaries of their ERISA and PBGC protections."
The guidance from the DOL includes Interpretive Bulletin 95-1, which relates to the fiduciary standards under the Employee Retirement Income Security Act of 1974. The bulletin was published in 1995 and was designed as a result of the collapse of Executive Life Insurance Co. in 1991.