Mayer Brown has an interdisciplinary team of lawyers who focus on the unique issues at the intersection of insurance, pensions and capital markets. As evidenced by recent pension de-risking transactions in the US involving GM ($26 billion), Verizon ($7.5 billion) and Ford (potentially $18 billion), pension de-risking by extinguishing plan liabilities is emerging as a critical theme among defined benefit (pension) plan sponsor companies of all sizes.
Over the past several years, plan sponsor concerns regarding volatility in pension obligations have been heightened by changes in accounting and funding rules, as well as by volatile capital markets, a low interest rate environment and longevity risk issues. Many defined benefit plan sponsors have frozen defined benefit plans to new hires or frozen benefit accruals completely. Some sponsors of both frozen and ongoing plans have sought to reduce the volatility of their pension obligations by pursuing in-plan investment strategies, which include the use of swaps and derivatives, as well as strategies such as “immunization” or “liability driven” investing—or the purchase of annuity contracts held by the plan as an investment. More recently, there appears to be increasing plan sponsor interest in the selective settlement of plan obligations through the use of “buy-out” annuities for, or offering lump sums to, certain segments of the plan population (both in the context of an ongoing plan or frozen plan or a spin-off/termination).
The implementation of de-risking strategies, including the structuring and negotiation of insurance contracts with respect to ongoing, frozen or terminating plans, offering lump-sum distributions to individuals in pay status, and the use of novel investments can be incredibly complex and, in addition to the difficult financial calculus, may involve insurance law, tax, qualified plan, accounting and ERISA fiduciary issues. Mayer Brown’s experienced team is uniquely positioned to advise companies interested in implementing such strategies.
- Advising an insurer on developing / creating their bulk annuity products.
- Advising a Brazil reinsurer on a Longevity reinsurance agreement governed by English law.
- Advising French investment bank in establishing a USD$ 700 million collateral protection arrangement to secure indirect derivative exposure across multiple CLO structures via the back to back swap arrangements with SPVs.
- £1.6bn buy-in using a security structure with Pension Insurance Corporation (PIC) for the Total Pension Scheme. This is one of the largest UK bulk annuity transactions to date.
- £800 million+ buy-in with Paternoster for the P&O Pension Scheme which was the first major pensions buy-in in the UK and won “Deal of the Year” in the Financial News’ Awards for Excellence in Institutional Asset Management.
- £278 million buy-in with Prudential for the Home Retail Group Pension Scheme.
- £150 million buy-in with Aviva for the Meat & Livestock Commission Pension Scheme.
- £150 million buy-in with Legal & General for the Ofcom Staff Pension Plan, subsequently followed by a further £25 million buy-in with Legal & General.
- £115 million buy-in transaction with Rothesay Life for the Western United Group Pension Scheme.
- £190 million buy-in transaction with Rothesay Life for the Smith & Nephew UK Pension Fund.
- £820 million aggregate pensioner buy-ins for the TI Group Pension Scheme (one of the Smiths Group schemes) in four tranches with Legal & General, Paternoster, Rothesay Life and PIC.
- £335 million buy-in transaction with Legal & General for 100% deferred member population.