Benefits and Compensation

LIMRA Data: Pension Buyouts at Highest Q1 Level in 15 Years

Single-premium pension buyout sales as part of the “derisking” of defined benefit (DB) retirement plans for the first quarter rose 31% from the same period in 2016, totaling $1.4 billion—the highest first-quarter results in 15 years, according to the LIMRA Secure Retirement Institute.


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It was only the second time first-quarter pension liability sales to insurance companies have exceeded $1 billion since 2008, the institute said in a May 24 news release. Traditionally, pension buyout sales rise each quarter through the year and are highest in the fourth quarter. The sales reached $13.7 billion for all of 2016. (See Pension Buyout Sales Reached Nearly $6 Billion for Q3, Says LIMRA.) However, the seasonality of pension risk transfer sales seems to be changing. “More recently, the institute has observed broader, more consistent sales. Buy-out sales have surpassed $1 billion for eight consecutive quarters,” Matthew Drinkwater, assistant vice president at the LIMRA institute, said in the release.

Reasons to Shed Liabilities

Changes in mortality tables that reflect increasing longevity, higher interest rates, and rising Pension Benefit Guaranty Corporation (PBGC) premiums for DB plans all give corporate plan sponsors incentives to consider shedding pension liabilities, as executives perceive that the cost to retain the liabilities outweighs the benefits.

Total assets of pension buyout products were nearly $99 billion at the end of the first quarter of 2017, LIMRA data showed, nearly 11% higher than in the first quarter of the previous year.

A group annuity risk transfer allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove an often-threateningly large liability from its balance sheet and reduce the volatility of the pension’s funded status. Single-premium group, or terminal funding, annuity contracts are purchased by an employer that has decided to terminate its DB pension plan and is required by regulation to transfer participants’ accrued benefit liabilities into a life insurer’s irrevocable group annuity contract.

Funding Struggles

Drinkwater said recent research at the LIMRA institute indicated that eight out of 10 employers with traditional DB plans are interested in pension risk transfer activities such as buyouts. But roughly the same percentage of DB plans are currently less than 90% funded, LIMRA said, which makes their liabilities harder to sell off to the insurance companies that buy them. Several years of low interest rates and volatile financial markets have made it difficult for sponsors to keep DB plans fully funded.

The LIMRA assistant vice president said the institute expected funded rates to improve as interest rates increase.

The LIMRA Secure Retirement Institute conducts the Group Annuity Risk Transfer Survey each quarter with participation from the 14 financial services companies that provide group annuity contracts for the U.S. market. The institute describes itself as a source of “unbiased research and education” about the retirement industry.

Jane Meacham is the editor of BLR’s retirement plan compliance publications. She has nearly 30 years’ experience as a writer/editor of financial services news.