Companies with defined-benefit pensions have been racing to offload those retirement plan liabilites to annuity providers via pension risk transfers, doing so at a record pace in the first quarter.
Through March, there were $14.6 in pension-risk transfer premiums, more than double the amount seen during the first quarter of 2023, according to data this week from Limra. That represented 146 contracts, a 26 percent increase from a year ago. Still, it is far from the all-time high seen during any quarter, which was over $26 billion during the third quarter of 2022.
Many large pension sponsors have previously paid insurance companies to take over their pension risks, although the trend is trickling down to smaller companies, resulting in smaller average plan sizes but a higher number of transactions, according to Limra.
“Every plan sponsor is different and are taking different approaches to de-risking or managing risk,” Keith Golembiewski, head of Limra Annuity Research, said in a statement provided by the organization to InvestmentNews. “The pipeline and demand for de-risking strategies is strong, and we should continue to see plan sponsors utilize these types of options.”
The sales come in the backdrop of a new line of retirement-plan litigation that has targeted several major employers over pension-risk transfers. Those lawsuits were filed earlier this year against Lockheed Martin, AT&T, and Alcoa. Those companies all selected Athene Annuity & Life Co. as the provider of the pension-risk transfer, and Athene has not been named as a party in any of the cases.
“I am sure there are a few companies that are taking a pause to either make sure they are comfortable internally with their strategic approach or waiting to see what happens from litigation or any potential changes to suitability requirements,” Golembiewski said. “The current economic conditions are strong and demand for improving balance sheet volatility is extremely high.”
Until interest rates started rising recently, many employers with pensions on their books had struggled to maintain the funded status of those plans, and doing pension-risk transfers had been costlier. But rising interest rates changed much of that.
“A lot of what's driving this is interest rates – companies see an opportunity to get an attractive deal,” said Tamiko Toland, principal of Toland Consulting and CEO of IncomePath, in an email.
Aside from the recent lawsuits, employers could have another concern around pension-risk transfers in the near term. A report is pending from the Department of Labor to Congress that could outline changes the regulator has in the considerations plan sponsors should make when selecting pension-risk transfer providers, according to reporting by Bloomberg Law.
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