Pension Buy-Out Sales Hit Record in Q2

“Even without jumbo deals, there are just more plan sponsors looking to convert their pensions to group annuities,” says Michael Ericson at LIMRA.

Sales of group pension buy-outs reached $3.8 billion in the second quarter of 2015—a record for second quarter sales dating back to the early 1990’s, according to a LIMRA Secure Retirement Institute sales survey.

Pension buy-out sales tend to be seasonal, with most of the activity occurring in the fourth quarter, LIMRA says. But, sales increased more than 700% in the second quarter of 2015 compared to the prior year, due in part to Kimberly-Clark’s group annuity conversion enacted June 1.

Michael Ericson, research analyst for LIMRA Secure Retirement Institute, says there are clearly more plan sponsors looking to convert their pensions to group annuities. “We’ve seen a big increase in small and medium sized companies that are looking to convert their pensions,” he adds. “As a result, there is much more activity throughout the year, not just the fourth quarter.”

For the last five years, the first two quarters of the year have seen an upward trend of pension buy-out activity. In the first half of 2015, 107 plan sponsors converted their defined benefit (DB) pension plans into group annuity contracts. That tops the previous number of 95 contracts in the first half of 2012.

The number of contracts only tells part of the story, LIMRA says. In 2012, corporate giants General Motors and Verizon transferred group pension obligations to Prudential. Those two contracts resulted in a sales spike of $35.9 billion for that year. While two deals that big occurring in one year is an anomaly, a single “jumbo” deal can have a significant impact on annual pension buy-out sales.

While a DB pension plan adds equity to a company, years of low interest rates and increasing Pension Benefit Guarantee Corporation (PBGC) premiums have encouraged more companies to consider transferring their risk to an insurer by purchasing a group annuity. Currently, 11 financial services companies provide group annuity contracts for this market.