Investing August 22, 2016

Group Pension Buyouts Break $1 Billion Threshold Again

For the fifth consecutive quarter, group pension buy-outs have surpassed the $1 billion mark, reports the LIMRA Secure Retirement Institute.

Reported by

Javier Simon

Group pension buyout sales exceeded $1 billion for the second quarter of 2016, according to the LIMRA Secure Retirement Institute.

“Pension buyout activity for the first six months of this year is higher than it has been in the last five years,” says Michael Ericson, analyst for LIMRA. “More companies of all sizes are looking to transfer their pension risk, which has increased sales activity in the first half of the year.”

Traditionally, buyout sales have had a strong seasonality with most sales occurring in the fourth quarter. Activity in the first six months of 2016 is up 22% compared with the first half of 2015. Through the second quarter of this year, 131 plan sponsors have converted their defined benefit (DB) pension plans to group annuity contracts, surpassing the previous high-water mark of 107 contracts sold in the first six months of 2015.

The second quarter results of $1.03 billion are less than the $3.8 billion in sales for second quarter 2015 primarily because of one “jumbo” deal. Last year, Kimberly-Clarke transferred its pension into group annuity contracts with two insurance companies.

Several years of low interest rates and a volatile market have made it difficult for plan sponsors to keep their DB plans properly funded, LIMRA argues. In addition, the Pension Benefit Guarantee Corporation (PBGC) has significantly increased its premiums and is using new mortality tables, which are less favorable to plan sponsors.

“All of these factors have made DB plans more expensive and burdensome,” says Ericson. “That’s why an increasing number of companies are transferring their pension risk to an insurer by purchasing a group annuity.”

The most recent increase represents the fifth consecutive time group pension buyouts have closed the quarter passing the $1 billion milestone.

LIMRA Secure Retirement Institute conducts the Group Annuity Risk Transfer Survey each quarter with participation from 13 financial services companies that provide group annuity contracts for this market.