U.S. corporate executives considering a pension risk transfer need to think long and hard about the mechanics of how best to structure the deal with an insurance company: an asset-in-kind transaction, a cash transaction or some combination of both, industry experts said.
While an asset-in-kind transaction might be appealing, given its cheaper cost to execute in terms of a premium paid to insurance companies, it also will require plans to work in advance with their advisers so that assets meet the needs of insurers.
Pension plans are tax-exempt under the Employee Retirement Income Security Act of 1974, which enables corporate plans to take on more risk. But insurers operate under tighter regulatory restrictions, which requires that plans take a more cautious approach to assets that could later be under the control of an insurer.
