Benefits March 28, 2024

Pension Risk Transfer Premiums Hit $12.7B In Q4 2023

Following two record years for PRT transactions, LIMRA expects the trajectory to continue for the rest of 2024.

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Pension risk transfer premiums totaled $12.7 billion in the fourth quarter of 2023, according to research from LIMRA, following two record years for PRT transactions. LIMRA expects the trajectory of PRT transactions to continue for the rest of the year.

LIMRA, an industry association and education group that conducts research on insurance and income topics, this week published the results of its U.S. group annuity risk transfer sales survey.

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Heightened interest rates in recent years have decreased pension plan liabilities. Combined with strong investment returns boosting pension assets, the funded status of many corporate defined benefit plans in the U.S. have surpluses, with a number of pension trackers finding that many corporate plans are more than 100% funded. 

This has led many plan sponsors to consider offloading their pension liabilities to insurers and even to take other approaches. Earlier this year, Eastman Kodak announced it would close its internal investment office and transfer the assets of its overfunded pension plan to outsourced chief investment officer provider NEPC. These factors have led to a record number of plans sponsors transferring their pension liabilities to insurers, which then become responsible for making payments to a plan’s retirees.

The premiums in PRT transactions in Q4 2023 was 53% higher than during the same period in 2022, while the number of transactions—296 was 26% higher year over year.

In 2023, there were a total of 850 PRT contracts for the entire year. In total, PRT sales in 2023 reached $45.8 billion, the second highest annual sales figure since LIMRA began tracking PRT data; in 2022, PRT transactions totaled $48.3 billion.

“Fourth quarter PRT sales historically tend to be elevated, and we saw this again in 2023,” wrote Keith Golembiewski, LIMRA’s head of annuity research, in the survey report. “Plan sponsors often want to close the deal before the end of the year to remove some of the pension risk off their books. …  We continue to see a record-level number of deals, suggesting broader awareness and interest in these contracts. LIMRA expects this trajectory to continue with 2024 PRT sales results similar to the results seen 2022 and 2023.”

Other findings from the survey include:

  • In Q4 2023, $12.5 billion in single-premium buyout sales occurred, up 73% from the same period in 2022;
  • Buyout sales declined 14% from 2022 to $41.3 billion in 2023, compared to the previous year; and
  • There were 763 buyout contracts in 2023, 36% higher than 2022.

Several large PRT transactions have already closed in the year’s first quarter. In February, Shell USA Inc. closed a $4.9 billion deal with Prudential Financial for 21,500 retirees. In March, Verizon announced a $5.9 billion deal with Prudential and RGA Insurance, offloading liabilities for 56,000 retirees.

Still, PRT contracts have come under increased scrutiny. This year, plaintiffs representing retirees of Lockheed Martin and AT&T have sued the respective companies for choosing Athene Annuity and Life Co. as the insurer for their pension risk transfers.

The plaintiffs in these lawsuits accuse Athene of being a risky insurer, alleging that the choice was not made according to the Department of Labor’s IB 95-1, which regulates how a defined benefit plan chooses an annuity provider.

Separately, the DOL is expected to issue a report to Congress soon on the results of hearings and a review of IB 95-1, required by the SECURE 2.0 Act of 2022. The report was due by the end of 2023.

Compliance March 28, 2024

PBGC Says Central States Will Reimburse SFA Overpayment

Central States is currently working with the DOJ to negotiate the repayment of a $127 million overpayment from the PBGC.

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The Pension Benefit Guaranty Corporation responded to a subpoena from a House committee addressing the repayment of a Special Financial Assistance Program overpayment to a multiemployer pension fund, saying the Department of Justice is working to recover the funds. The plan in question, the Central States, Southeast and Southwest Areas Pension Fund, accidentally received extra money in December 2022 based on the inclusion of deceased participants.

A PBGC spokesperson said, “For several months, PBGC has been coordinating with PBGC’s Office of the Inspector General, the Civil Division of the Department of Justice, and Central States to finalize the terms of an agreement that will include repayment of the $127 million from Central States. In testimony last week before the House Subcommittee on Health, Employment, Labor, and Pensions, PBGC Director Gordon Hartogensis gave a full accounting of how PBGC has fixed the problem and that PBGC will recover any funds attributable to deceased participants from the plans.”

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Representative Virginia Foxx, R-North Carolina, the chair of the U.S. House Committee on Education and the Workforce, subpoenaed Hartogensis, the director of the PBGC, compelling him to turn over to the committee by April 9 documents related to the repayment of a $127 million overpayment of federal special financial assistance to the Central States pension fund.

In December 2022, Central States was granted $35.8 billion in assistance under the SFA program. The SFA program was created by the American Rescue Plan Act and enables the PBGC to provide grant funding to assist severely underfunded multiemployer pensions.

In July 2023, Central States and the PBGC discovered that $127 million, or about 0.35% of the grant, had been overpaid to the pension because 3,479 deceased participants were counted as active participants. According to both Central States and the PBGC, this mistake resulted from the PBGC not using the Social Security death master file when reviewing SFA applications.

The Central States pension had 13,546 participants at the end of 2022, according to its Form 5500. According to PBGC data, it applied for SFA funding on August 12, 2022, before being approved in December.

The PBGC began using the death master file for reviewing SFA applications in November 2023.

Hartogensis testified on March 20 to the committee’s subcommittee on Health, Employment, Labor, and Pensions that Central States was required to repay the money and was working with the Department of Justice’s Civil Division to that end.

Foxx’s subpoena requires him to provide documents and communications related to quantifying other potential overpayments to other plans; communications with Central States regarding collection; and communications with other agencies in the executive branch regarding collection, among other items.

The rule governing the distribution of SFA funds says that “SFA is subject to recalculation or adjustment to correct any clerical or arithmetic error. PBGC will, and plans must, make payments as needed to reflect any such changes in a timely manner. SFA is also subject to debt collection if PBGC determines that a payment for SFA to a plan exceeded the amount to which the plan was entitled.”

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