Pension Risk Transfers Hit Highest Level Ever

The pension risk transfer trend keeps rolling along, with 2023’s first half recording a record: 289 transactions totaling $22.4 billion in premiums, according to a report from Aon, the largest PRT adviser.

Aon predicted that the full year would see $40 billion in PRT deals, noting that the PRT market typically is busiest in a year’s second half. The report declared: “The pipeline continues to be robust, and we are hearing a lot of interest from plan sponsors. We expect a busy second half of the year with many lift-outs and plan terminations already in progress.”

The risk transfer field expanded in the year’s first two quarters with the number of providers reaching 21. (Aon indicated that it had advised two-thirds of the deals in the period.) The report commented that “increased competition among PRT insurers drove improved transaction pricing and more sophisticated insurance.” Pricing was so competitive that many of the deals were for below the sponsors’ pension obligation.

The largest deal in the first half of the year was AT&T’s $8 billion transfer, covering 100,000 participants, the third largest transaction in PRT history. The second largest transfer was $2 billion from an unnamed sponsor, with two others, also unnamed, at $1 billion each.

For more stories like this, sign up for the CIO Alert newsletter. 

Plan terminations, in which beneficiaries typically receive either an annuity or a lump sum, composed half of the deals, Aon reported. Lift-outs (in which a sponsor ships a portion of its plan to an insurer) was the next largest area, with buy-ins (the sponsor continues to administer the plan, but the insurer assumes longevity and investment risk) in third place.

The report stated that increased competition among PRT insurers drove improved transaction pricing and more sophisticated insurance solutions. Aon also noted that insurers increasingly were partnering up to bid on deals.

How to Navigate Pension Risk Transfers, per 2 Experts

Pension Risk Transfers: What to Watch Out For

Tags: Aon, buy-in, insurers, lift-outs, Pension Risk Transfer, Plan Sponsors, Premiums, PRT, terminations

The Retirement Fund of Local 305 CIO’s Pension Fund, a pension fund for workers in the service industry, received $36.3 million in special financial assistance from the Pension Benefit Guaranty Corporation today.

The Mineola, New York-based plan has 918 participants. The plan was projected to become insolvent in 2024, when benefits would have been cut by approximately 15%.

According to the fund’s Form 5500, the plan had seven active participants at the end of 2021. It also had 337 participants receiving benefits and another 541 entitled to benefits in the future. The plan first applied for the Special Financial Assistance Program in December 2022.

The SFA provision of the American Rescue Plan Act allows for PBGC funding for severely underfunded multiemployer pension plans. Funds that receive assistance must monitor the interest resulting from the grant money as separate from other sources of funding. The PBGC requires that at least two-thirds of the money it provides be invested in “high-quality fixed income investments.” The Final Rule on Special Financial Assistance, issued in July 2022, states that the other third can be invested in “return-seeking investments,” such as stocks and stock funds.

For more stories like this, sign up for the CIO Alert newsletter. 

Tags: PBGC, SFA