The Right Team Is Key to a Successful PRT

Paula Cole

Nationwide has reentered the pension risk transfer market because of its longstanding commitment to providing extraordinary care and its recognition that the pension risk transfer marketplace caters to extraordinary care at a group level, according to Paula Cole, vice president of Nationwide’s pension risk transfer business. “We saw an opportunity to leverage our industry-recognized annuity and retirement sector expertise to reenter an attractive and growing market and deliver a customer-centric experience to those planning for and living in retirement,” she says.

Cole recently spoke with PLANADVISER about the elements that help ensure a successful PRT.

PLANADVISER: How long does a PRT transaction usually take from start to finish and what are the general steps?

Paula Cole: How long a PRT takes depends on the type of transaction—whether the plan sponsor wants to terminate its defined benefit plan or lift out a population of participants in the plan. A plan termination could take upwards of 18 months for going through the regulatory process and the selection of an insurer. During this time, plan sponsors will work in partnership with investment advisers, annuity placement providers and others. Lifting out only a select group of plan participants for a pension risk transfer can take as little as three to six months. Regardless of the PRT chosen, plan sponsors will work with the same team members to ensure the transaction and associated regulatory compliance is performed.

PA: What are some challenges that plan sponsors face in delivering an effective PRT transaction, and how can plan advisers help them overcome these challenges?

Cole: Ensuring data is clean and accurate can be challenging, but having the most complete, accurate and up-to-date data possible will help facilitate a smooth transition. Data integrity has a direct impact on price, as participant data is used to assess mortality risk, one of the key drivers of cost in a transaction. Additional challenges relate to the number of different parties with specialized expertise who are necessary to support the plan sponsor in the PRT process. In addition, having correct data for each and every participant will help instill confidence that their hard-earned benefit will not be adversely affected. If the right investment strategist, legal advisers to the plan and annuity placement team members are selected, that is the best bet for a more successful transaction. Another challenge could be managing the multiple stakeholders involved in the PRT. Managing all their responsibilities throughout the process can be complicated, so working with the plan sponsor team to set expectations and identify deliverables for each role early in the process is of the utmost importance for advisers.

PA: What are some key elements to delivering an optimal PRT experience to plan sponsors and participants?

Cole: Some of the six elements we at Nationwide present as necessary for a successful PRT I’ve already mentioned—having the right team of people to help make the best decisions during the process; establishing the right strategy for derisking by lifting out certain participants or for plan termination; and gathering and cleaning the data relevant for insurers to price the transaction. In addition, it is important to determine the information relevant to the strategy selected to create the request for proposal to go to market. This will help in selecting a safe and reliable insurer to take on the transaction. Choosing the right insurer is the next element to a successful PRT. While price is an important consideration, there are other things a plan sponsor will want to consider, such as how seamless the transaction and the ongoing participant experience will be. Last but not least, informative and transparent communications to annuitants is essential. Explaining the benefit of the transaction to annuitants will help give annuitants peace of mind and help them embrace the change.

PA: How does Nationwide help to deliver a better PRT experience for sponsors and participants?

Cole: Best-in-class service associates and a transition team with deep industry experience are equipped to handle the multitude of milestones and deliverables necessary to handle the transaction in a project-management-style approach. We understand the needs of plan sponsors and meet them with seamless execution, as well as personalized assistance with all of the necessary communications. And, as a key differentiator, we offer a bit of “white glove” service where we handle the transaction on behalf of the plan sponsor from the point of sale into communication and to execution of the contract. Our plan sponsor clients overwhelmingly express that they are extremely satisfied and the ease in which we lead the transition.

PA: What forces are driving PRT transactions, and how much activity do you expect in the coming years?

Cole: We’ve seen continued, sustained growth since 2012, when there were a handful of plan sponsors that “moved the market,” as we like to say. Since then, companies have looked at their balance sheets to see what the best long-term investment approach is to support their legacy DB plans. Companies are looking at how to make sure their balance sheet is pointed to what they deliver as a company while also supporting employees. They want a retirement incentive for employees, but they might not be best equipped to manage the investment strategy because of changing market volatility and because of the administrative burden of managing all that an employer-based plan provides. They are looking to derisk themselves of the obligation, taking a more strategic approach to insuring benefits by aligning retirees with insurers better equipped with investment strategies to protect those benefits. Managed appropriately, PRT can help deliver with excellence those obligations promised to employees.

Read more about Nationwide’s winning game plan for PRTs. Download the white paper here.

This material is not a recommendation to buy or sell a financial product or to adopt an investment strategy. Investors should discuss their specific situation with their financial professional.

Federal tax laws are complex and subject to change. The information in this material is based on current interpretations of the law and is not guaranteed. Neither Nationwide nor its employees, agents, brokers or registered representatives give legal or tax advice.

Products are issued by Nationwide Life Insurance Company, Columbus, Ohio. The general distributor is Nationwide Investment Services Corporation, member FINRA, Columbus, Ohio.

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