Spring Edition of Plan Consultant: Lifetime Income Solutions for DC Plans: Survival Sharing

Am gratified to have Bruno Caron and my Ed Burrow's award winning paper published on page 30, of the Spring 2017 edition of Plan Consultant magazine.  

https://www.asppa.org/Resources/Publications/Plan-Consultant-Online/Previous-Full-Issues

Lifetime income solutions are a crucial element in retirement planning, mainly because of unknown time of death and various other factors; the American Academy of Actuaries’ Lifetime Income Task Force discusses these issues in depth (AAA Lifetime Income Task Force). The lack of popularity in single- premium immediate annuities (SPIAs) is striking at a time when people are living longer and relying less on defined benefit plans. Demographics could not be more favorable for major investments in innovation in the lifetime income space, yet few solutions have been put forward to address this basic societal need.

Survival Sharing represents a post-retirement offering for small defined contribution plan participants that provides a cost effective longevity hedge solution for individuals. The formal details and mechanics of Survival Sharing can be found in a 2014 patent link (Caron, 2014). Essentially, Survival Sharing is a hybrid between an insurance and an investment product.  It groups retirees and pre- retirees of similar underwriting criteria in closed investment pods where each member agrees upfront to forgo its share of the fund upon death. Distributions are scheduled periodically to members of the group in a structure that transfers the mortality risk as well as the investment risk to the group. It attempts to replicate the payout of a traditional DB pension or SPIA. Removing the insurance guarantee from the product allows many benefits, including a cost-effective offering and access to exposure in non-fixed income asset classes. 

Survival Sharing differentiates itself in many ways from current retirement income solutions as well as other tontine-type schemes. Its closed-end Structure means an individual can participate in many pools, but each pool is independent of the others. By design, Survival Sharing enhances transparency by allowing participants to precisely track their contributions and distributions. Outflows from a fund can either be distributed to participants, stay in the fund or be used to pay for administrative fees. An individual with a very basic knowledge of investments and life contingencies can replicate payouts easily and attest assumptions. By design, Survival Sharing “whitens” the actuarial black box.