Variable annuity pension plans (VAPPs) are hybrid retirement plans that provide employers an alternative design to the traditional defined benefit (DB) plan and the defined contribution (DC) plan. VAPPs can stabilize contributions for sponsors while offering participants lifelong income. This reading list highlights various aspects related to VAPPs.
• Milliman Hangout: Variable annuity pension plans (VAPPs)
Milliman consultants Kelly Coffing and Grant Camp talk about the VAPP’s features in this video. They also discuss the value VAPPs offer sponsors and participants.
• “Making the case for variable annuity pension plans (VAPPs)”
VAPP retirement benefits increase or decrease depending on whether a plan’s investments return more or less than the established “hurdle rate.” A benefit stabilization strategy preserves funding stability and diminishes benefit declines. Coffing and Camp discuss the strategy in this article.
• “Making the case for variable annuity pension plans (VAPPs): Basic VAPP benefits and design strengths”
This article provides examples of how a retiree’s basic VAPP benefits would change over different historical periods. The article also details the strengths and weaknesses of the VAPP design.
• “Making the case for variable annuity pension plans (VAPPs): Stabilized VAPP benefits”
In this article, Coffing, Camp, and Ladd Preppernau discuss the stabilized VAPP model. The design involves building a reserve, spending the reserve in down markets to prevent benefit decreases, and improving benefits if the reserve is larger than is required to prevent benefit decreases.
• Making the case for variable annuity pension plans (VAPPs): Shared retirement risks: How VAPPs stack up
There are four main risks associated with retirement plans: Investment risk, interest rate risk, inflation risk, and longevity risk. This article authored by Coffing, Camp, and Preppernau provides perspective on how VAPPs address these risks.
• “A balanced approach to retirement risk”
VAPPs address several sponsor concerns like funding and accounting volatility. The design also helps alleviate participant concerns related to money management and inflation. Milliman’s Camp offers more perspective in this blog.
• “Variable annuity plans may benefit employers and employees”
In this blog, Milliman’s Ryan Hart provides a chart comparing and contrasting VAPPs alongside defined contribution plans and traditional defined benefit plans.
• “Variable annuity pension plans: An emerging retirement plan design”’
In this article, Coffing and Mark Olleman provide historical scenarios of how retirees’ benefits would vary over time under a VAPP structure.
• “Variable Annuities: A retirement plan design with less contribution volatility”
Multiemployer plan trustees seeking sustainable ways to provide participants with lifelong benefits that allow for more predictable contributions may want to consider the VAPP design. This paper by Olleman, Coffing, and Preppernau explains the advantages that VAPPs offer single and multiemployers as well as their employees.