Retiree Medical Risk Transfer (MRT) Buy-in Contract

Many employers have already addressed the risks associated with sponsoring a pension plan by purchasing a group annuity contract to transfer investment and longevity risks for some or all of their pension obligations to an insurance company. An adjacent risk transfer product for retiree medical has been developed that allows plan sponsors to outsource risks associated with retiree medical liabilities to a highly rated insurance company in a structure that does not impact employer control over the plan, and that provides retirees undisrupted plan coverage and servicing with no tax implications.

  • The contract is held on the employer’s balance sheet or in a 401(h), VEBA or Non-Qualified Trust and used to pay retiree medical expenses. The contract guarantee closely matches the plan liability cash flows thereby reducing income statement and balance sheet volatility. Investment and longevity risk are transferred to the insurance company.
  • The employer remains in control of the plan, including design, benefit structure and vendor selection. All service providers remain in place, with the possible exception of the investment manager.
  • The contract can cover pre and post-65 retirees for either the entire retiree population or any segment defined by the employer. Those age 55 and older not included in the original contract can be insured at a future date.
  • The one-time single premium pricing for the contract is based on a maximum annual benefit, and the insurer reimburses the contract holder for medical claims up to the maximum on a quarterly basis.
  • The contract includes an experience refund feature which allows the sponsor to benefit in the event actual experience is lower than expected.
  • The contract is revocable and does not trigger settlement accounting. If the contract is held within the 401(h) and the pension is terminated in the future the contract can be transferred to a VEBA. If the contract is held in a non-union VEBA it would avoid Unrelated Business Taxable Income (UBTI).
  • Unlike pension transactions there are no 95-1 ‘safest available insurer’ requirements.
  • The contract requires the participation of 100 retiree lives or a single premium of $10 M.

About The Brentwood Companies

Brentwood has been assessing pension and healthcare liabilities and placing group annuity contracts for pension risk transfer for over 35 years. For the past decade, our role has also included working as an independent fiduciary alongside a plan sponsor’s consulting actuary, investment advisor and legal team by providing all of the services associated with risk transfer transactions. Additionally, Brentwood provides institutionally priced individual annuities to Multi-employer and Defined Contribution plans.