Small Pension Plan Sponsors Fully Embrace PRT Transactions

Nearly 85% of pension plans paying PBGC premiums have less than 1,000 participants—so it only makes sense that small plans make up a significant proportion of the ERISA industry’s annual risk transfer business.

By John Manganaro | November 03, 2016
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Dietrich and Associates, Inc. and United of Omaha recently hosted a webinar to discuss the way small- and micro-plan sponsors think about pension risk transfers (PRTs), suggesting small employers have embraced PRT transactions in a big way in the last handful of years.

According to experts from Dietrich and Associates, which specializes in supporting plan sponsors during the PRT process, it is simply incorrect to assume that large defined benefit (DB) pension plans are setting all the trends when it comes to offloading pension liability.

“Believe it or not, the small-plan market is the traditional annuitization market—there is 35 years of history here, and 80% of plans being annuitized today are small-market plans,” said Geoff Dietrich, executive vice president. “If you are a small plan sponsor and you don't think PRT is available to you, we encourage you to look at your options. Of course the press coverage is not there for each small plan transfer, but they are still setting trends in terms of PRT transactions.”

Dietrich adds that partial settlements are very common in this marketplace. For example, an employer might target only terminated vested participants for a risk transfer, or those already retired and collecting an annuity.

“In most cases, small plan sponsors have not annuitized benefits before and thus they require the use of a specialist to make it work well,” Dietrich adds. “Under our approach, the plan sponsor works directly with an underwriter who guides the process, supported by an actuary, compliance specialist and recordkeeper. It’s a highly regulated and time-sensitive process, so expert support is invaluable.”

Sales executives with United of Omaha—one of a handful of affiliates of the Mutual of Omaha that supports small- and micro-plan PRT business—suggested that the last five years or longer “have been very exciting in this space.” The annual volume of termination business that the company serves since 2011 has grown nearly 10-times over, in fact. Some of the growth is reflective of the fact that the firm is writing slightly larger cases on average, but there is also strong evidence that the market is growing wider.

NEXT: How low can PRT go?