Employers racing to offload pensions to insurers
To the extent that traditional pension plans aren’t all but a thing of the past in the private sector, they soon may be.
Among companies that still have active defined-benefit plans on their books, 89% are planning to offload their pensions to insurance companies using a strategy called pension risk transfer, which puts workers and retirees into group annuities. That statistic comes from a recent survey commissioned by MetLife, which found that the companies planning to transfer their pension liabilities will do so within an average of about four years.
Last year was a record for pension-risk transfers, with 562 buyout contracts, representing $48.3 billion, up by 42% compared to levels in 2021, according to data from Limra. This year is on track to approach that figure, with $22.5 billion in contract buyouts during the first half of 2023, the group reported in August.
The ramp-up in employers’ exits from pension plans coincides with the improved financial health of their plans. Higher interest rates have helped give a boost to plans’ funded status, making them eligible for transfers to insurance companies, Limra assistant annuity research director Mark Paracer said in a statement earlier this year.
This year marks the first time in more than a decade that pensions of S&P 500 companies have, in aggregate, reached a funding ratio of over 100%. As of Tuesday, the funded ratio was 102.3%, according to data from Aon. That ratio had been less than 75% in mid-2012, shortly after Aon began tracking the pensions’ funded statuses.
The trend in pension risk transfers has been a boon for insurers, and the industry expects that to continue. But there are questions about how pension participants will be protected as they move out of
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