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Small benefit retiree annuity purchase (SBRAP)

\ smɔl \ ˈbɛnəfɪt \ riˈtaɪˈri \ əˈnuəti \ ˈpɜrʧəs \ (ɛs-bi-ɑr-eɪ-pi) \

A pension risk transfer structure popular in the US where the benefits of retirees with the smallest pensions are secured with an insurance company.

In the US the annuity purchase is usually structured as a buy-out so as to pass all further responsibilities for the benefits onto the insurance company. This is not generally allowed in the UK, where the purchase would usually be structured as a buy-in.

The practice is popular in the US as single-employer pension plans must pay an insurance premium to the Pension Benefit Guaranty Corporation which depends on the number of participants in the plan. SBRAPs are seen as an economical way to discharge responsibility for many members while incurring relatively low costs. However, plans need to be careful when assessing value of such deals as participants with low benefits generally have shorter life expectancies and are therefore not always appropriately valued using plan average assumptions.

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