Most Companies Plan to Get Rid of Their Pension Liabilities
Plan sponsors are increasingly turning to options like annuity buyouts to eliminate their pension obligations.
More U.S. companies are considering transferring away their pension liabilities, according to a new survey by MetLife.
Roughly two-thirds of the 102 plan sponsors polled by the insurance company last year stated that they were interested in conducting an annuity buyout, up from 46 percent in 2015. Interest in pension buyouts among American companies has increased as Fortune 500 companies like FedEx and Raytheon have announced annuity deals and federal insurance rates for underfunded pensions have gone up.
“The poll findings indicate a trend in increased pension risk transfer activity as we anticipate plan sponsors will want to proactively deal with the cost and volatility of their plans,” Wayne Daniel, senior vice president and head of U.S. pensions at MetLife, said in a statement.
Three-quarters of the surveyed plan sponsors said they intended to completely divest their defined benefit pension liabilities at some point in the future, with some 35 percent planning to eliminate their liabilities within the next five years.
Half intended to combine a buyout with lump sum payouts to plan participants, while 17 percent were targeting a buyout only. Just over a quarter said they were only planning to offer lump sums, down from 34 percent in 2017.
According to MetLife, the primary catalyst behind the rising interest in reducing or eliminating pension liabilities is the ever-rising rates charged by the Pension Benefit Guaranty Corporation, the government agency that insures private-sector pension benefits. Fifty-two percent of survey respondents pointed to changes to PBGC premiums as their motivation for undertaking risk transfer activities.
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“Many will begin to look more closely at the $3 trillion of DB plan liabilities that have not yet been de-risked and begin to evaluate how they can address this,” Daniel said.
Annuity buyouts in particular have become more attractive options for plan sponsors as more major corporations have entered into large and well-publicized deals with insurers, with 79 percent of survey respondents stating that they were more likely to choose a buyout now that several Fortune 500 companies have.
Recent companies to announce annuity buyouts include Raytheon, which signed a deal in July to transfer $923 million in pension liabilities to Prudential, and FedEx, which announced a whopping $6 billion risk transfer to MetLife in May.
Among plan sponsors with de-risking goals, two-thirds said they would consider a pension risk transfer to an insurer in the next two years, according to the survey. The poll was conducted between August 13 and September 27, with 41 percent of the respondents representing defined benefit plans with assets of $1 billion or more.