PRT Costs Decrease, Market Heats

Pension risk transfer transactions are trending more toward terminations than lift-outs this year, according to October Three Consulting LLC’s “2025 PRT Trend Report,” released today.

According to the report, 94% of insurance companies surveyed indicated they have seen a greater number of plan terminations than lift-outs this year. When a plan terminates, annuities are purchased for all remaining participants, and the plan ends permanently. The other 6% said they have seen more lift-outs, in which a subset of plan participants were transferred to an insurance company through the purchase of annuities.

LIMRA recently reported that total U.S. PRT premiums fell 64% in the second quarter of 2025 to $4.1 billion. Although October Three expects PRT activity in 2025 will decrease from that of last year, interest rates, pension plan funding and current market conditions remain favorable for plan sponsors to de-risk their defined benefit plans.

In August, the estimated cost to transfer retiree pension risk to an insurer through a competitive bidding process decreased to 100.0% from 100.1% of a plan sponsor’s accounting liabilities, Milliman reported in its pension buyout index. The bidding process among carriers in the annuity buyout market was estimated to save plan sponsors an average of 3.4% of PRT costs as of August 31.

“Funded statuses are at historical highs since 2007, and the [stock] market and [higher] interest rates are helping,” says Mark Unhoch, a partner in and the pension risk transfer practice leader at October Three. “[That] makes this a great time for plan sponsors to do something if they have a frozen plan and they are [neither] folding [n]or underfunded.”

Lift-Outs vs. Terminations

High funding levels and high annuity purchase interest rates drove the trend toward terminations, according to October Three’s report. The firm’s Annuity Plan 1, a hypothetical plan that contains retirees only and has a liability duration of seven years, saw a 0.11% increase in annuity purchase interest rates, while Annuity Plan 2, with 70% retirees and 30% not retired, and a 15-year duration, saw a rise of 4.92%.

Jake Pringle, leader of the annuity placement team at Milliman, says terminations may take longer than lift-outs because they need to comply with IRS and Pension Benefit Guaranty Corporation timelines. He says lift-outs can offer more flexibility to plan sponsors wanting to de-risk their plans.

“There is an opportunity to see more retiree lift-outs as we close out the year, because those are easier to do and they can move a little quicker,” says Pringle. “But now that interest rates have gone up, we’re starting to see that turnaround and we can terminate [too], or we can start the process to terminate.”

October Three’s Unhoch says a typical termination can take anywhere from six to 24 months, making lift-outs the quicker option. While lift-outs can be beneficial when interest rates are high, however, the chance to conduct a termination may not be available to plan sponsors next year.

“If [a plan sponsor] wants to start something because of how conditions are right now, [they] may want to start looking at a buy-in,” Unhoch says. “If interest rates drop on [them], [they] may not be able to afford to terminate down the road.”

At the Inflection Point

Unhoch says plan sponsors are at an “inflection point” right now, as the average funding of a defined benefit plan is greater than 100%. Like with any financial transaction, however, a plan sponsor should do a cost/benefit analysis to determine whether it should do a PRT today or wait.

In considering a PRT, Unhoch highlights that PRTs may benefit not only the plan sponsor, but the participant as well.

“[Participants’] benefits become fully funded at the point they are purchased from the insurance company, whereas they may not be fully funded in the ongoing plan or the frozen plan,” Unhoch explains. “Buy-ins are more popular now, because as plans have become better funded, they can … lock into the cost for the annuity prior to terminating the plan. So it helps from a financial impact standpoint.”

In 2024, the average annuity purchase cost of retiree transactions placed by October Three Annuity Services decreased to 101.32% of the Generally Accepted Accounting Principles projected benefit obligation, as the number of transactions and competition increased. As a result, competition among carriers in the PRT marketplace has heated up and given plan sponsors a strong market to choose from, providing participants with a better advantage, Unhoch says.

While insurers saw record PRT activity in 2024, they were not quite at capacity, and demand for PRT activity remains high. Respondents to October Three’s survey indicated they were building out their PRT teams and systems, among other resources. Seventy-six percent of insurers saw new business in the first half of 2025, while 24% said they saw an even split between new business and overflow.

Moreover, some insurers who specialize in jumbo transactions (of at least $1 billion) are moving downmarket to bid on smaller transactions due to the lack of jumbo cases available, the report found. Of those surveyed, 82% have adjusted their underwriting guidelines in the past few years to improve their competitive advantage and broaden the range of transactions on which they can bid. Three-quarters of those companies say they have increased the number of placements they participate in as a result.

“The marketplace has grown, and the number of insurance carriers had to grow with it in order to have the capacity [to meet the demand],” says Unhoch. “If you’re a supplier, you need to expand your business to get the same amount of business you were getting before.”

Expectations for H2 2025, H1 2026

Of the investors October Three surveyed, 88% predicted that more carriers will enter the PRT market over the next three to five years, while only 12% said the number of carriers will remain at current levels.

“With new entrants into the market expected over the next few years, insurer quality should be a major consideration for plan sponsors when selecting a carrier,” the report stated. “A lack of discipline and administrative experience in the space could present greater risks for sponsors and plan participants. This will make it more important than ever for plan sponsors to engage independent experts to analyze insurer financials in accordance with [Department of Labor Interpretive Bulletin] 95-1.”

Based on activity in the first half of 2025 and current business in the pipeline, the insurers October Three surveyed expected the trend toward fewer jumbo transactions to continue: 82% expect fewer transactions in 2025 than 2024, and the same proportion expects a lower dollar value of all transactions as well.

“We know that we’ve seen a [high] volume of deals typically transact in the second half of the year,” says Paula Cole, Nationwide’s head of PRT. “We anticipate there may be some jumbo market [activity] … [but] we know, overall, the PRT marketplace will be down below what we saw last year.”