Graphic: The rise of pension risk transfers
Pension plans were once a key way for companies to attract and retain employees. Increasing PBGC premiums and mounting liabilities leave companies looking for options to get out from under the burden, sometimes paying significant premiums to do so.
A way out: Through the end of July, 24 pension plans globally have moved to derisk some or all of their liabilities in 2018, covering about $19 billion in total plan assets — of which $16 billion was done via buy-in or buyout strategies.
Can't keep up: Funding ratios have recovered some since the financial crisis, but low yields coupled with volatile asset returns have driven liabilities to near $2.5 trillion. Recent improvements in funded status are more a function of rates than asset returns.
Getting ahead: Pension contributions spiked in 2017 in anticipation of the GOP tax law that reduced corporate taxes, thus lessening the tax benefits of future contributions. Such moves can improve funded status, making PRT a cheaper option.
Opportunity knocks: Corporate discount rates may have turned a corner; should the trend continue, expect lower liabilities opening more windows for plans to offload risk.
*Largest corporate pension plans by 10-year average assets. Sources: P&I Research Center, Bloomberg LP
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