Pension Plan Sponsors Increasingly Implementing Buy-Outs

Data shared by LIMRA Secure Retirement Institute (LIMRA SRI) shows U.S. single premium pension buy-out sales totaled $13.7 billion during 2016, “almost one percent higher than prior year and the second highest annual total recorded,” according to LIMRA SRI’s quarterly U.S. Group Annuity Risk Transfer Survey.

During the fourth quarter of 2016, single premium pension buy-out sales were $5.8 billion, “which is level with 2015 sales.”

“This marks the seventh consecutive quarter to exceed $1 billion in sales, a trend never seen since the Institute began tracking sales in the 1980s,” observes Matthew Drinkwater, assistant vice president. “Buy-out sales have strong seasonality, usually resulting in higher sales in the fourth quarter. However 2016 proved to be an exception to this trend with fourth quarter results slightly lower than the third quarter sale.”

According to Drinkwater, jumbo plan sales (transactions involving more than $1 billion) “tend to swing quarterly results.”

“While there was only one jumbo sale in 2016, the Institute continues to see broad growth across the industry and many of the sales came from smaller plans,” he says. ”Participating companies reported having sold more than 383 contracts in 2016.”

Total assets of buy-out products were nearly $99 billion at the end of the fourth quarter 2016, an increase of 9%. Other findings show “single-premium buy-in product sales” reached $15.7 million in 2016, up a whopping 118% from 2015. Of course, this is still very much a developing market, as there were only three single-premium buy-in contracts sold in 2016, according to LIMRA SRI.

“Continued market volatility and low interest rates coupled with PBGC premium increases have drawn more employers to explore transferring their pension risk to an insurer,” Drinkwater concludes. “New Institute research finds about one in three employer-sponsored pensions have a funding status of 80% or more. As plans approach full funding, they become attractive candidates for PRT.”

Additional research and information is available at www.limra.com/secureretirementinstitute/.