Benefits and Compensation

Pension Buyout Transactions Soared to Highest Levels in 30+ Years

Total sales of U.S. single-premium defined benefit (DB) pension buyout products soared above $4.7 billion in the first quarter, the highest pension risk transfer (PRT) sales in that period in more than 30 years, according to data from the LIMRA Secure Retirement Institute. That level is more than triple the value of the previous first-quarter record.pension

The 2019 first-quarter pension buyout sales represent a 240% advance from the same category of first-quarter sales the year before, the independent research institute said in a press release.

LIMRA found in its quarterly U.S. Group Annuity Risk Transfer Survey, the source of the latest quarterly data, that the leap in early 2019 sales was not limited to just a few insurance companies buying company pension benefit obligations (PBO). Instead, two-thirds of companies surveyed reported higher first-quarter PRT sales compared with the same period in the previous year, LIMRA’s institute said.

New Q1 High Point

“Previous first-quarter sales had never exceeded $1.5 billion,” said Mark Paracer, assistant research director for LIMRA’s Secure Retirement Institute.

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.

According to the institute, survey participants reported 29,417 contracts sold as of March 31, an increase of 15% over the first quarter of 2018. Total assets of buyout products in the latest first quarter rose 15% year-on-year, reaching $139 billion.

The data indicated total group annuity risk transfer sales in this year’s first quarter reached $4.9 billion, a 213% jump from that total in the same quarter in 2018, LIMRA said.

A group annuity risk transfer product, such as a pension buyout product, allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove the liability from its balance sheet and reduce the volatility of the 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.

Unusual for Start of Year

“The spike in sales in the first quarter was driven by strong small and midsized deals and one large deal,” Paracer said. “Typically, large buyout deals have occurred during the third and fourth quarters.”

LIMRA regularly has reported from its surveys of insurance companies selling group annuity products that there has been a significant increase since 2014 in PRT, or “derisking” by employer-sponsored pension plans.

Seventeen companies participated in the latest first-quarter LIMRA survey, representing the entire U.S. PRT market. A breakout of pension buyout sales by quarter since 2012 is available in the LIMRA Fact Tank.

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.