Plan Sponsors Increasingly Seek to Divest All DB Liabilities Amid Corporate Scrutiny

A growing number of plan sponsors are looking to completely offload their defined benefit plan liabilities, due in part to corporate pressure to reign in the costs and risks associated with the pensions, according to MetLife’s 2024 Pension Risk Transfer Poll.

The poll found that 93% of companies with de-risking goals plan to completely divest their defined benefit pension plan liabilities, up from 89% in last year’s poll. Meanwhile slightly more than half (52%) reported they plan to divest within two to five years, with the average of 3.8 years down from 4.1 years in the 2023 survey.

Additionally, 90% of those polled reported that their pension plans are drawing “significant attention” from corporate management because of the financial effects that the plan’s volatility and associated risks have on a company’s balance sheet and income statements.

Approximately 68% of plan sponsors responded that they will secure a group annuity for a retiree lift-out, which involves buying annuities to transfer the liabilities related to some or all of a plan’s current retired participants. According to MetLife, this figure increased to 83% for plan sponsors seeking to offload at least $1 billion in plan liabilities. Meanwhile, only 26% of plan sponsors reported they will secure a buyout for a plan termination, which involves buying annuities to transfer liabilities for all of the plan’s current and retired participants.

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Nearly two-thirds (66%) of plan sponsors said they will most likely use an annuity buyout when they de-risk their plans, up from 46% in 2015 when MetLife commissioned the first version of the poll. This includes an annuity buyout on its own or a combination of a lump sum payment offering and an annuity buyout.

The survey also found that an increasing number of plan sponsors are preparing to reduce their DB plans’ pension risks, with 56% saying they are improving their plan’s data quality and 52% increasing plan contributions, both typical, preparatory steps companies take before committing to a pension risk transfer.

Other indicators of impending pension risk transfers include 29% of companies seeing more involvement from their C-suite executives in DB plan management, while 23% said they are offering a lump sum distribution to terminated-vested participants, and 20% are adopting a liability-driven-investing strategy to minimize risks to their plans’ funded status. Meanwhile, only 2% of plan sponsors polled said they have taken no action related to de-risking their plans.

“As the poll and other market data indicates, the pension risk transfer market continues its bullish growth and will likely continue to remain strong in the near future,” Elizabeth Walsh, MetLife’s vice president of U.S. pensions, said in a statement. “The driving force between the continued interest in derisking remains the current macroeconomic environment.”