Case study: Partnering annuity placement services with co-fiduciary services

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By Mary Leong, Katherine A. Warren | 05 October 2018


Milliman recently expanded its plan termination and de-risking services to include pension risk transfer services (i.e., group annuity placements). We found our clients were looking for a trusted partner to assist them with the request for proposal (RFP) process, act on their behalf to obtain bids from insurers in the market, and understand the Department of Labor’s (DOL) 95-1 requirements for fiduciaries in selecting the “safest” annuity provider. In addition, some Milliman clients were looking for a partner to act as a co-fiduciary (or even independent fiduciary) in the selection process to ensure their due diligence in the process.

The challenge

A long-term client had sold the family-owned business and wanted to terminate its pension plan. The client sought assistance with purchasing annuities for 188 participants in pay status and 44 participants who elected to defer their retirement (or failed to respond) in conjunction with the pension plan’s termination. They were looking for a trusted partner to assist them and, upon the advice of their attorney, assistance with their fiduciary responsibilities.

The solution

The Milliman pension consultant brought in Milliman’s annuity placement team (“AP team”) to assist. Milliman’s AP team not only assists with the annuity placement process, but also has life actuaries who provide analyses for DOL 95-1 requirements. While the plan sponsor is ultimately the plan’s fiduciary with respect to selecting the insurer and meeting the DOL 95-1 requirements, the plan sponsor may look to a co-fiduciary (or independent fiduciary) to assist them with their selection. For this particular situation, the client was also looking for a co-fiduciary. The AP team’s solution for this request was to reach out to Brentwood Assets Advisors (one of several advisors Milliman partners with) to provide co-fiduciary services for this client. Milliman put together a timeline to identify the responsible party for each step of the annuity placement process. A sample timeline is illustrated below.

Phases I and II (Preliminary/final bid Process) Phase III (Due diligence/post-sale)
Weeks 1-2 Weeks 3-4 Weeks 5-6 Weeks 7-8 Weeks 9-12
  • Project approval
  • Provide supplemental notice of annuity information*
  • Prepare request for group annuity Contract bid
  • Prepare participant data for bids
  • Send request to carriers
  • Carrier review/ underwriting
  • Preliminary bid date
  • Review due diligence package and preliminary annuity purchase pricing report
  • Final bid date
  • Review final bids and select carrier
  • Notify selected carrier and execute acceptance documents
  • Transfer premium to carrier
  • Transition retirement payment obligations
  • Distribute notice to participants of selected annuity provider
  • Transition participant data to selected insurance carrier
  • Review annuity contract
  • Carrier sends welcome letter to participants
  • Benefit payment start date (6-8 weeks after the final bid date)
  • Finalize annuity contract
  • Carrier releases annuity certificates
  • Reconciliation period

*Must be mailed no later than 45 days before purchase for a plan termination.

Milliman’s AP team had a number of responsibilities, including drafting the annuity bid specifications from the plan provisions with the assistance of the Milliman pension consultant, reviewing the preliminary and final participant data to provide to the insurers, coordinating the request for proposal, and providing the preliminary and final pricing reports.

Brentwood’s responsibilities included reviewing each insurer that participated in the annuity bid process and each of the criteria under DOL 95-1, including:

1. The quality and diversification of the annuity provider's investment portfolio

2. The size of the insurer relative to the proposed contract

3. The level of the insurer's capital and surplus

4. The lines of business of the annuity provider and other indications of an insurer's exposure to liability

5. The structure of the annuity contract and guarantees supporting the annuities, such as the use of separate accounts

6. The availability of additional protection through state guaranty associations and the extent of their guarantees

Milliman’s AP team and Brentwood then reviewed all information with the client to assist in the selection of the insurer for their group annuity purchase. Upon the client’s request, the preliminary bids and DOL 95-1 report were reviewed extensively, specifically with respect to the four insurers that participated in the placement, during a previously scheduled board meeting. The final bids were reviewed via conference call with all parties participating. All of the insurers included in Milliman’s annuity placement process satisfied the criteria of DOL 95-1. The focus in reviewing selection criteria was specific to the client’s concerns and questions with respect to the insurers that were participating in the placement.

The outcome

Overall, the client received competitive pricing and was informed of their criteria as fiduciaries of the plan for selecting the safest insurer with the assistance of the co-fiduciary. The client appreciated that their Milliman pension consultant brought in the expertise needed to make the annuity purchase process as painless as possible, along with assistance with the other steps in the plan termination process (including participant communications and transferring the participant data to the selected insurer).

Annuity placements can vary in size and complexity, and different insurers within the group annuity market may focus on different market segments (e.g., retirees only, minimum placement size, plan terminations, etc.). Milliman’s AP team has extensive knowledge in the overall annuity placement process and can provide clients with information that can help them understand what to expect based on their specific plan provisions and plan size.