One trend in the pension risk transfer landscape that has seen increased activity is full pension plan terminations, experts say.
"We definitely continue to see an increase in the numbers of the plan terminations," said Ari Jacobs, Chicago-based senior partner and global retirement solutions leader at Aon PLC, in a telephone interview. "I think some of that still relates to the large amount of funding that went into pension plans a year ago because of tax relief."
Many U.S. corporations made several years' worth of pension contributions before Sept. 15, 2018, the deadline to deduct portions of the contributions at the old corporate tax rate of 35%. President Donald Trump signed the Tax Cuts and Jobs Act, which reduced the rate to 21%, in December 2017.
This year saw the largest-ever voluntary U.S. pension plan termination when New York-based Bristol-Myers Squibb Co. terminated its $3.8 billion pension plan and transferred the full amount of liabilities through a group annuity contract purchased from Athene Annuity and Life Co.
There were 18,000 former employees who had yet to retire, 4,800 active employees, and 1,400 retirees and their beneficiaries in the plan.
Bristol-Myers Squibb had the advantage of being 100% funded. While interest rates have declined, increasing liabilities, most plans have managed to keep their funding levels up thanks to moderately strong investment returns, experts say.
Another recent completed termination was that of Brunswick Corp., Mettawa, Ill., which announced in August it had made settlement payments totaling $596 million to complete termination of two U.S. defined benefit plans.
The settlements included the purchase of a group annuity contract from an undisclosed insurance company and $77.1 million in lump-sum payments elected by eligible participants.
"We're seeing a tremendous uptick in plan terminations coming off of last year, generally speaking, with contributions up and funded status generally improved," said Kim Rosenberg, head of distribution and retirement solutions, U.S. retirement, at Legal & General America, Stamford, Conn., in a telephone interview.
"They took all the risk off their tables and they became well funded in a very short period of time," she said. "We've seen that begin to trickle in this year, a pretty significant increase in plan terminations year-over-year and we continue to see that next year and beyond."
Mr. Jacobs also sees an increase in plan terminations, noting that many plans have moved far enough along in their derisking paths that interest rate fluctuations don't make as much of an impact on funded status as they might have a few years ago.
It is still more common, however, that annuity purchases will transfer retirees only, which has traditionally been a more simple transaction.
"Quite a few clients have started with a single strand, a fairly simple retiree-only transaction instead of a full tranche to test the waters," Ms. Rosenberg said.
Most plans in general still transfer the liabilities of retirees whose monthly benefits are small, which in recent years have been executed primarily to reduce plans' head counts because of rising fixed-rate premiums to the Pension Benefit Guaranty Corp.
The fixed rate, which is measured per participant, was $35 in 2012, but is now $74 per participant and will be $83 in 2020.