Insurance Executives Say ERISA PRT Rule Is Enough

Only minor changes to the DOL's PRT regulation, IB 95-1, would be needed to account for changing market conditions, industry leaders say.



Representatives of the life insurance and pension risk transfer industry say that only minimal changes, if that, are needed to the Department of Labor’s Interpretive Bulletin 95-1, that governs fiduciary standards for selecting an insurer for a pension annuitization.

The SECURE 2.0 Act of 2022 requires the Department of Labor to study IB 95-1 and report its findings and any recommended changes to Congress by the end of this year.

The DOL’s ERISA Advisory Council hosted a stakeholder hearing in July to discuss possible changes to IB 95-1. In a written submission to the council, Agilis, an insurance consultancy in the pension risk transfer market, explained that IB 95-1 is working well, but some positive changes could still be made.

The firm stated that an updated IB 95-1 should require fiduciaries to consider both the use of reinsurance and the cybersecurity administration of the provider. Michael Clark, a managing director and consulting actuary with Agilis says cybersecurity “should be explicitly mentioned in the standard.”

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Fiduciaries should also be made aware that they can use more than one independent expert when determining the safest annuity provider available, according to Agilis, and the DOL should make IB 95-1 a formal regulation, rather than an interpretive statement, so it has clearer legal force. Clark said the “DOL should issue formal regulations that codify IB 95-1.”

The Agilis statement also noted that some of the more common concerns about the PRT marketplace, as expressed at the hearing by advocates for labor and the elderly, are already addressed by IB 95-1. For example, the role of private equity investors as owners of insurance companies and that structure’s potential to create conflicts is addressed by the requirement to consider the insurer’s other liabilities or “lines of business.” Another concern, that insurers are adopting riskier investment portfolios, is also addressed already: “The quality and diversification of the annuity provider’s investment portfolio” is listed in IB 95-1, Clark said.

A written statement by retirement services and annuity provider Athene to the ERISA Advisory Council explained that part of the reason for moving to less liquid or riskier investments is because corporate bonds are more correlated and therefore less diversified than they have been in years past. This creates a need to diversify out of lower risk bonds.

Athene stated that “there is simply no compelling need to overhaul IB 95-1” because the legitimate concerns about PRTs are already addressed by IB 95-1 and no PRT payment has been missed because of a solvency issue since IB 95-1 was issued, a remark repeated by other representatives of the industry at the hearing.

Many labor advocates argued at July’s hearing that annuitizing pension obligations removes Employee Retirement Income Security Act and Pension Benefit Guaranty Corporation protections from plan participants because life insurance companies are not backed by the PBGC or directly subject to ERISA.

Clark says it is “arguable that you are losing ERISA protections” because the provisions of the plan are transferred to the insurer and priced. The PRT product will normally mirror the benefits of the plan, and since that plan was designed under and subject to ERISA, the annuity is functionally the same.

Clark adds that the PBGC backup is not as great as some make it out to be. Pensions fail more frequently than insurance companies and the PBGC typically requires participants to take a “haircut”—sometimes a heavy one.

The PBGC does provide a guaranteed level of protection, and as an institution, is less likely to become insolvent than a life insurance company because it is backed by the federal government. This means that though participants may have to take a haircut if the PBGC takes over their pension, they are not facing the same risk they would be if their annuity manager becomes insolvent.

Clark concedes this point and says, “Both systems provide protection,” but adds that it is “hard to see a scenario where people lose as much as they might if the PBGC takes over their benefits” and that when it comes to a catastrophic failure of an annuity provider such that participants take a heavier hit than they would under the PBGC, “the likelihood of that isn’t zero, but it is pretty darn close to it.”

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AustralianSuper Adds 6 Senior Staff to London Office

Carl Astorri will lead the A$300 billion pension fund’s UK investment team.



The A$300 billion ($196.1 billion) AustralianSuper, Australia’s largest pension fund, has appointed six executives to investment, risk and corporate affairs roles at its London office.  

The pension fund named Carl Astorri as head of investments, Europe. He will be responsible for building and leading the fund’s London-based investment team as it expands its public and private markets resources.

Astorri, who has been with AustralianSuper in Melbourne since 2015, is returning to London after having previously led the team responsible for asset allocation, equity strategy and macroeconomic research. He was also previously global head of economics and asset strategy at Coutts & Co., head of investment strategy at Barclays Wealth and an economist at the Bank of England.

John Normand, who was hired as head of investment strategy, will lead the asset allocation research team that drives investment strategy among all major asset classes. He will join AustralianSuper in late August after a 24-year career at J.P. Morgan Chase & Co., where he was most recently head of cross-asset strategy. He was also J.P. Morgan’s head of research for foreign exchange, international bonds and commodities.

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Sujay Shah has been named head of internal government portfolios and is tasked with managing the pension fund’s government bonds portfolios and team. Shah, who will split time between the U.K. and Australia, joins AustralianSuper from Tesco Pension Fund. He has nearly two decades of experience working in central banking, discretionary trading and active portfolio management. He previously held senior roles at The Bank of England, Goldman Sachs and BMO Global Asset Management.

The pension fund also named Deborah Gilshan to oversee its environmental, social and governance and stewardship programs in public and private markets in Europe. For the last four years, she has provided independent advisory services on investment stewardship, ESG integration and diversity to clients and is the founder of The 100% Club, a networking alliance dedicated to gender equality.

William Manfield has been named head of group risk, international, and will be responsible for the strategic direction of the risk and compliance function in the international offices. This includes the implementation and ongoing effectiveness of AustralianSuper’s risk management framework and ensuring adherence to local regulatory requirements. He joins AustralianSuper from BNP Paribas Asset Management and has previously held roles at Janus Henderson Investors, BlueBay Asset Management and Schroders.

Amanda Mitchell has been named head of European corporate affairs to provide strategic advice and support to AustralianSuper’s London and New York offices. She joins AustralianSuper after 16 years at Macquarie Group, where she was most recently head of corporate affairs for the firm’s global asset management business.

“We’re building a high-caliber and experienced team in London to ensure the Fund is strategically positioned in a market that will create many opportunities to generate excellent long-term returns for members,” AustralianSuper Deputy CIO Damian Moloney said in a release.

 

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AustralianSuper Warns of ‘Low or Even Negative’ Returns

 

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