Companies are breaking new ground by using captive insurance units to fund pension benefits. Towers Watson, a human resources consulting company, says it has advised on more than $1 billion in insurance transactions to put such arrangements in place.

"What this does is bring into harmony the rights of participants and the rights of shareholders," says Mitch Cole, a director at Towers Watson. "Shareholders want to make sure that everything that gets promised gets paid, but they want to make sure that it gets paid in the most efficient way possible."

A company that sponsors a pension plan arranges to buy from an insurer a group annuity that will pay future benefits for plan participants, Cole explains, and the insurer then reinsures the annuity with the company's captive.

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