Benefits June 7, 2024

146 PRT Contracts Were Sold in Q1

The contracts, totaling $14.6 billion in premiums, represent a 26% increase from Q1 2023 and an all-time record, LIMRA reports.

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The rise in pension risk transfer transactions in the U.S. shows no sign of stopping. In the first quarter of this year, single-premium PRT sales reached $14.6 billion across 146 contracts, according to insurance research organization LIMRA, which published the data Thursday in its U.S. group annuity risk transfer sales survey.

The value of Q1 transactions exceeded those in the first quarter of 2023 by 130%, and the number of contracts sold rose 26%, the survey found. The contracts sold in the first quarter covered 200,000 corporate pension plan participants.

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“Demand for PRT solutions continues as favorable economic conditions spur plan sponsors to de-risk their pension obligations,” said Keith Golembiewski, head of LIMRA Annuity Research, in a press release. “While there were a few jumbo deals driving the remarkable premium growth, the number of contracts sold was the highest first-quarter results seen since LIMRA has been tracking sales, signaling broad plan sponsor interest.”

Single-premium buy-outs—i.e., where the plan sponsor transfers the plan to an insurer—reached $14.2 billion in the first quarter, across 144 contracts. LIMRA recorded only two buy-in transactions—i.e., where the sponsor continues to run the plan, but the insurer holds the risk—valued at $435.6 million collectively.

In a separate report, Legal & General Retirement America, the PRT wing of U.K. asset manager Legal & General, also recorded an estimated $15 billion in pension risk transfer premiums closed in the first quarter.

LIMRA’s Golembiewski wrote that his organization expects the PRT momentum to continue throughout this year. A number of large transactions have already occurred, such as oil giant Shell’s $4.9 billion PRT with Prudential Financial, power company Entergy’s $1.2 billion transaction with MetLife, and telecom provider Verizon’s $5.9 billion pension transfer with Prudential and RGA Reinsurance.

As higher interest rates have elevated many plans’ funded status, and in some cases created a funding surplus in corporate pension plans, increasingly plan sponsors are considering moving their pension liabilities from their balance sheet and offloading them to an annuity provider.

According to data from consultancy Milliman, nearly half of the largest 100 U.S. corporate defined benefit plans are in a funding surplus, and none of them have a funded status of less than 75%.

Benefits June 6, 2024

PSNC 2024: DB Plan Maintenance

How sponsors of defined benefit pension funds can enhance their maintenance of those offerings, plus considerations for including DB plans in the total retirement planning picture.

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Maintaining a healthy defined benefit pension fund is a competitive advantage to plan sponsors and can give employers an option for providing retirement income for plan participants, according to speakers during a panel at the 2024 PLANSPONSOR National Conference in Chicago.

Continuing to offer a DB plan provides a value advantage to plan sponsors by giving participants a “guaranteed benefit,” explained Rob Massa, managing director and retirement practice leader at Qualified Plan Advisors.

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Plan sponsors can use their DB benefit to support their workers to create a stream of income in retirement, as pension plans have clear, demonstrated value to beneficiaries, added Massa.

“A lot of this conference has been talking about guaranteed lifetime income, and DB plans were the guaranteed lifetime income benefit that so many of our parents or grandparents grew up with,” he said. “We’re coming full circle with [defined contribution plans] and saying, ‘how do we make these things income tools?’”

Plan sponsors with existing or frozen DB plans, that are in surplus and considering plan termination could decline to close the plan, switching their outlook about the pension to use it as competitive differentiator for workforce recruitment and retention.

Maintaining a pension “is [an] incredibly competitive [advantage], certainly in the corporate DB market, [because] very few remain,” Massa added. “it’s not a common benefit, so it’s a huge advantage for competition for talent to say, ‘hey, we provide some kind of monthly income benefit [in] retirement through a pension plan.”

Milliman and Principal Asset Management research on pension plan funding found plan sponsors in the current market have a singular opportunity to choose to protect funding levels, terminate the pension entirely or accelerate de-risking of DBs as the funded status of many has improved to reach fully funded and near-to-fully funded status.

Instead of continuing to de-risk or terminate a pension, by switching their thinking plan sponsors also have opportunity to improve their participants’ prospects for generating lifetime income, added Brian Donohue, partner at October Three, an actuarial services provider.

Plan sponsor IBM reopened its frozen cash-balance plan in 2023 while ending contributions to the defined contribution plan and making 5% contributions instead to the DB plan for all the DC participants. The IBM DB plan was frozen to new hires in 2006.

Donohue’s message to DB sponsors: “you currently have a mechanism for providing retirement income that is unbeatable,” he said. The pooled pricing of risk attainable in DB plans cannot be beat in a DC plan, he added.

“Actuarial 101 [is] if you’re going to underwrite one life, there’s a wide range of potential ages of death [but] get 100 lives, you’re going to see that that expected average age really narrow down,” he added.

Donohue said he is “skeptical that any DC [plan] income solution ever is going to be competitive because I don’t see how they get past the individual versus pooled pricing,” he said. “A lot of people [are] looking around for retirement income solutions [and] I’ve seen 20 years of DC retirement solutions: They can’t compete,” Donohue said. “I don’t see how they can ever get past that mortality pool problem.”

Before entirely terminating a DB, plan sponsors should try to discern the total value it provides, he added.  

“Employers should understand that they have a DB plan that provides this mechanism to deliver higher retirement income than people can find elsewhere,” Donohue said. “And because of the way the rules work inside DB plans, it is especially true for women—where they’re going to get dinged in the private [annuity] market because of their longer life expectancy, but in a DB plan, they can get a better benefit.”

Using the DB plan strategically, removing some participants via voluntary early retirements, “in some situations actually provides a pretty big advantage to plan sponsors that want to manage their workflow and their people,” concluded Paul Moore, senior vice president, workplace consulting at Fidelity Investments.

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