![steps of annuitized on financial calculators steps of annuitized on financial calculators](https://i.pinimg.com/originals/2c/f3/3a/2cf33ae0e5f5013f2a4b390e698297be.png)
The insurer then transitions the participants to its administration system and follows up by sending them a “welcome letter.” The post-sale phase also includes a review by the plan sponsor and annuity placement consultant to finalize the annuity purchase contract to account for any data corrections that impact the cost of the annuity.
#STEPS OF ANNUITIZED ON FINANCIAL CALCULATORS HOW TO#
If future retirees are included in the annuity purchase, they will be made aware of the insurance company now responsible for paying their retirement benefit, and how to contact it. The plan sponsor sends a “goodbye letter” notifying retired participants that their pension benefits will be paid by the selected insurer going forward (if this is the group included in the annuity purchase). After the plan sponsor executes the acceptance documents, the premium is transferred to the insurer shortly thereafter and the pension obligations are now the responsibility of the insurer.ĭuring the post-sale phase, both the plan sponsor and the insurance company communicate with participants. On the final bid date, insurers submit their final quotes and the plan sponsor selects the carrier within a very narrow timeframe. In the final bid process, the annuity purchase team then updates the census data to reflect any changes that have occurred since the preliminary bid and then final bids are requested from the insurers. This team then produces a due diligence package designed to help plan sponsors fulfill their fiduciary obligation to select the “safest annuity provider available” according to Department of Labor (DOL) guidance issued in Interpretive Bulletin 95-1. After the preliminary bids are submitted, the annuity placement team reviews and summarizes the proposals. Each insurer assesses the bid package and determines whether or not to bid. In the preliminary bid phase, an annuity purchase team provides the pension plan bid package to insurance carriers currently in the group annuity contract market. Within the bidding phase, there are two steps: the preliminary bid and the final bid. The annuity purchase process is made up of the bidding phase and the post-sale phase. And while the work involved in purchasing an annuity can be a significant strain on resources for a plan sponsor, this article shows, with a real-life example, how having a dedicated and experienced team as a business partner in this endeavor can benefit the plan sponsor both financially and administratively.īefore diving into the specifics of our client’s experience, we first want to outline an overview of the process to obtain competitive bids on a group annuity. This transfer of the risks and responsibilities associated with the pension plan is one of several ways to “de-risk” a pension plan. In return, the insurance company will take on the obligations of the pension plan, generally through a group annuity purchase. Adding to the year-to-year uncertainty is that pension liabilities also vary with annual mortality updates from the Society of Actuaries (SOA) due to changes in expected future improvement in mortality.īoth the mortality and interest rate risks can be transferred to an insurance company for a price. This relationship negatively impacts volatility reduction.īecause the liabilities reported on a financial statement are determined as of the “measurement” date, the prevailing interest rate on that one date can have significant implications. As a result, minimizing or managing volatility is one of the primary goals in an organization’s financial planning.įor pension plan sponsors, this goal can be elusive because pension liabilities are directly affected by constantly changing interest rates, which sponsors have no control over. These professionals, however, do not always have control of some of the levers that cause financial results to deviate from projections, which can create a sense of uneasiness. For chief financial officers (CFOs) and executives who are responsible for financial reporting, it is important that their projections closely reflect reality as results are realized over time.