Retiree Lift-Outs Boost Pension Risk Transfers to $4 Billion in Q3

Plan sponsors that delayed transferring pension risk because of the pandemic are expected to power about $18 billion in deal flows in the second half of the year.

Pension risk transfer (PRT) transactions jumped to about $4 billion in the third quarter, up from $2.3 billion in the second quarter, according to a Legal & General Retirement America (LGRA) report released Thursday. The market is expected to climb to an estimated $14 billion in the fourth quarter.

Altogether, an estimated $25 billion in total transaction volume is expected for the entire calendar year. That estimate represents a 17% slump from the prior year, but would still mark 2020 as the fourth-largest pension risk transfer market in the past decade.

“It’s a pretty amazing accomplishment,” said LGRA President George Palms. “When you think of the economy, the market and what’s going on, to me, it validates the secular shift that pension plan sponsors are making toward de-risking.”

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

A significant shift to retiree lift-out transactions is driving deal flows in the latter part of the year, the insurer said. In the first and second quarters, plan terminations that employers started processing last year drove the $4.5 billion and $2.3 billion in respective quarter transactions, before the pandemic diminished sales volume.

But in the third quarter, about 60% of the pension risk transfer market was driven by retiree lift-out transactions, which allow companies to quickly offload a portion of their obligations.

Terminating plans in their entirety is a lengthy and rigorous process that can take more than a year to complete. “Once you decide you’re going to do it, you really want to continue it all the way to the end,” Palms said.

With a full plan termination, plan sponsors need time to immunize and fully de-risk investment portfolios, as well as file forms with regulators such as the Pension Benefit Guaranty Corporation (PBGC) and the IRS. At the same time, insurers have to calculate the cost of future payouts to all beneficiaries under the plan, including retirees and current workers.

On the other hand, retiree lift-outs, which only siphon off a portion of pensioners, are fairly easy for employers to execute and can be completed in a matter of months or weeks. “It’s a fairly vanilla, straightforward transaction,” Palms said.

Because companies either deferred retiree lift-outs or were focused on raising liquidity during the market downturn in the first part of the year, insurers are expecting an especially active season in the fourth quarter, as employers that resume usual business activities are expected to turn their attention to offloading pension risk from their balance sheets.

The Imitation Game: How AI Should Buoy Insurers—and Pension Risk Transfers

Milliman Launches Index to Track Pension Risk Transfer Market

Tags: Legal & General Investment Management (LGIM), Legal & General Retirement America (LGIMA), Pension, Pension Risk Transfer, Risk

Marc Lawrence, the president of a purported venture capital (VC) firm called Downing, has pleaded guilty to two counts of securities fraud and one count of wire fraud for his role in a Ponzi-like scheme in which he took millions of dollars from more than 30 unsuspecting investors and misappropriated the funds.

The US Attorney’s Office for the Southern District of New York (SDNY) said Lawrence lured investors through materially false and misleading statements. According to the indictment against Lawrence, he and Downing CEO David Wagner solicited millions of dollars from investors and said they would invest that money in health care startups. They said their firm provided sales, operations, and management expertise to the startups, which they referred to as “portfolio companies,” and that the firm would help bring their products to market and generate profits for Downing investors.

From at least December 2013 through at least 2017, Lawrence, Wagner, and others acting at their behest solicited more than $8 million in investments from the investors, who also worked for Downing, according to the indictment.

“Marc Lawrence and his co-defendant swindled employee-investors of their purported venture capital firm,” Audrey Strauss, acting US Attorney for the SDNY, said in a statement. “The firm was a sham, and employee-investor funds were used to pay personal expenses or pay off other investors in Ponzi-like fashion. Now, Lawrence awaits sentencing for his crimes.”

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

The employee-investors were required to invest between $150,000 and $250,000 in Downing, but soon after making their investments they learned that the Downing executives did not have access to millions of dollars in funding, often failed to make payroll, and had almost no products to sell.

The indictment said that after Lawrence, Wagner, and Downing were sued by several employee-investors in May 2016, the two continued their scam by recruiting employee-investors into a new company called Cliniflow Technologies. But this “was simply a new name used by Wagner and Lawrence to solicit investments from new employee-investors that was not tainted by the lawsuits filed against Downing entities,” according to the indictment. The indictment also said that most of the more than $1.5 million raised through Cliniflow was transferred to other Downing entities and used to pay for personal expenses and to repay prior investors.

The two counts of securities fraud and one count of wire fraud Lawrence pleaded guilty to each carry a maximum sentence of 20 years in prison. As part of a plea agreement with the government, Lawrence agreed to forfeit $150,000 and pay restitution of more than $4.5 million to his victims. He will be sentenced in February. Wagner pleaded guilty to two counts of securities fraud and one count wire fraud last month.