Data and Research

DB Pension Buyouts Reached a Milestone in Q1

Steady as a drumbeat, LIMRA Secure Retirement Institute data shows pension buyouts topped $1 billion for the fourth consecutive quarter. 

By John Manganaro editors@plansponsor.com | June 01, 2016

The latest U.S. Group Annuity Risk Transfer Survey from LIMRA Secure Retirement Institute (SRI) shows group pension buy-out sales reached $1.084 billion in the first quarter of 2016.

According to LIMRA SRI researchers, while this is the fourth quarter in a row that pension buyout sales topped a billion dollars, it’s actually the first time sales have beat the billion-dollar mark in the first quarter of a year since 2008. Part of the first-quarter momentum comes from the fact that pension buyouts are moving down market—and with so much demand in the buyout market, sponsors and providers can no longer always time these big-ticket events to coincide with the end of a calendar or fiscal year. 

Further, according to LIMRA SRI’s data, while a defined benefit (DB) pension plan adds equity to a company, “years of low interest rates and increasing Pension Benefit Guarantee Corporation (PBGC) premiums have motivated more companies to purchase a group annuity contract and transfer their pension liabilities to an insurer. A group pension buy-out allows an employer to transfer all or a portion of its pension liability to an insurance company.”

The LIMRA data shows first quarter buy-outs in 2016 increased 21% over first quarter 2015, “noteworthy because buy-out sales are typically low in the first quarter and increase slightly in the second and third quarters. Most sales activity happens in the fourth quarter creating a ‘tent pole’ effect compared to the rest of the year.”

Michael Ericson, analyst for LIMRA Secure Retirement Institute, warns that plan sponsors who try to increase funding for their group pensions “face an uphill challenge with uncertain market returns and low interest rates.”

“Those factors are the main reason 68 companies purchased buy-out contracts in the first quarter,” he says. “These companies show that increasing numbers of small and medium-size plans are transferring their pension risk, in addition to large ones.”

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