Annuities are created and sold by financial institutions, which accept and invest funds from individuals and then, upon
annuitization, issue a stream of payments at a later point in time.
We’ve made many moves to de-risk; made lump-sum payouts to some terminated-vested participants; utilized LDI [liability-driven investing] based on improvements in the plans’ funded status; reviewed funding strategies to reduce PBGC [Pension Benefit Guaranty Corporation] premiums; and currently we are reviewing options for
annuitization of some retiree benefits.”
Wincek's experience includes key roles in a number of well-known pension de-risking
annuitization transactions, as well as many smaller
annuitization transactions.
Like several recent studies of
annuitization (Agnew et al., 2008; Brown, Kapteyn, Luttmer, and Mitchell, 2013; Brown, Kling, Mullainathan, and Wrobel, 2013; Beshears et al., 2014), we accept the possible costs of using a stated preference approach to gain the benefits of controlling many aspects of the decision, such as product framing and descriptions of risk, that have been shown to influence decisions but cannot be held constant in most revealed preference data collections.
Alcoa said it will phase
annuitization in over time.
Deferred Annuities: A type of long-term savings product that allows assets to grow tax-deferred until
annuitization. This product category includes:
The insurer may provide guarantees of death proceeds or a certain
annuitization amount (if purchased) within a variable annuity, thus providing clients with guarantees that otherwise would be unavailable to those clients who purchased the underlying investments directly.
But for nonqualified accounts,
annuitization can offer an initial tax advantage over withdrawals because each annuitized payment will include a return of the annuitant's cost basis.
More specifically, regulators should: (1) encourage desirable forms of de-risking by establishing regulatory safe harbors; (2) require a battery of procedural safeguards for
annuitization transactions; (3) require improved disclosures for cash buyouts; and (4) limit cash buyouts when beneficiaries are not likely to meaningfully understand the potentially adverse consequences of trading a pension for cash.
This
annuitization process involves an irrevocable decision to accept a payment for the annuitant's life or a term of years, usually no fewer than five.
This restructuring of pension risk was achieved through a combination of a third-party
annuitization and a self-insurance solution.
* John Beshears, David Laibson, and Brigitte Madrian, Harvard University and NBER; James Choi, Yale University and NBER; and Stephen Zeldes, Columbia University and NBER, "What Makes
Annuitization More Appealing?" (NBER Working Paper No.
