Domtar Corporation announced it has purchased a group annuity buy-out contract from Sun Life Financial, thereby transferring approximately $360-million in obligations and related assets from its defined benefit pension plans in Ontario to the insurance company in exchange for a premium.
In addition, the company said it would convert existing buy-in annuities worth $101-million, into buy-out annuities to complete the full transfer of those obligations.
Under an annuity buy-out, in exchange for a lump-sum premium, insurance companies will make pension payments directly to retirees and spouses receiving survivor pensions. An annuity buy-in has the same benefits as a buy-out – the plan sponsor pays the lump-sum premium and the insurance company assumes the risk – while the plan sponsor keeps responsibility for the plan’s administration. The insurance company pays monthly pension payments to the plan which in turn pays out monthly benefits to retirees and spouses.
Insurer to make benefit payments to retirees
"Under this structure, the retirees are still part of the plan (for the plan sponsor) and the buy-in is an investment. The buy-in doesn’t trigger the need for a top-up contributions or settlement accounting, which could be triggered under a buy-out," says Brent Simmons, Sun Life’s senior managing director and head of defined benefit solutions. “In this case, Domtar had purchased annuity buy-ins with other insurers in the past which are now being converted. Retirees will receive monthly payments directly from the insurance company after the conversion.”
The company says the market for buy-out annuities has grown rapidly, setting new records every year since 2013. In Canada, group annuity sales hit a record $4.6-billion in 2018.
The annuity buy-out transactions completed this week will transfer responsibility for pension benefits for approximately 1,265 Domtar employees and spouses in Ontario. The insurance company will begin making benefits payments to affected retirees and spouses on March 1, 2020.
Sun Life Financial group annuity deals
- December 2019, Domtar Corporation
- November 2019, Rayonier Advanced Materials
- August 2019, Morneau Shepell (for Stelco’s Hamilton Works)
- April 2018, Alcoa Corp.
- July 2017, Husky Energy Inc.
- May 2017, undisclosed plan sponsor
- January 2017, Loblaw Companies
- December, 2-015, two undisclosed plan sponsors
- March 2015, BCE Inc.
- June 2013, Canadian Wheat Board
