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NEPC: Most corporate plans looking at lump sums, annuity contracts

The majority of U.S. corporate pension plans facing increased PBGC premiums in 2017 are considering lump-sum payouts to former employees or purchasing a group annuity contract from an insurance company, a new NEPC survey says.

Of the 184 corporate pension plan executives representing around $280 billion that were surveyed in August, 45% said they are considering lump-sum offers to former employees who are vested in their plans but who have yet to retire, while 27% plan to purchase annuities.

Thirty-nine percent of surveyed executives said they are not planning any changes, while 25% are considering higher contributions to the plan. Multiple answers were accepted.

In a budget deal approved in late 2015, Pension Benefit Guaranty Corp. premiums will rise to $80 per participant by 2019 from $57 in 2015, while variable-rate premiums of $30 per $1,000 of underfunding in 2015 will increase to $41 by 2019.

Because of the increases, “plan sponsors have been scrambling on what to do ever since,” said Brad Smith, partner in NEPC's corporate practice, in a news release announcement of the survey results. Updated mortality tables from the Society of Actuaries have also provided concerns as well, as workers' longevity continues to increase, causing liabilities to rise, according to the release.

Those rising liabilities have lowered funding ratios, meanwhile, which continue to vex plan sponsors who want to derisk their plans using these methods. While an 80% funding ratio is required to be able to make lump-sum payment offers to vested former employees who have yet to retire, 28% of surveyed plans have a ratio of less than 80%, up from 21% in 2015.

The survey was conducted online by NEPC in August.