Annuity buyout most common pension de-risking strategy among U.S. plans: survey

Three-quarters (76 per cent) of U.S. defined benefit plan sponsors with de-risking goals intend to completely divest all of their DB plan liabilities at some point in the future, according to MetLife’ annual pension risk transfer survey.

Among all plan sponsors surveyed 10 per cent said they’ll completely divest their plans within the next two years; 24 per cent will completely divest their plans in the next two to five years; and 43 per cent will take more than five years to completely divest their plans. The remaining 24 per cent said they never plan to completely divest from their DB pension liabilities.

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The survey found an annuity buyout is the most common type of pension risk transfer activity plan sponsors intend to use, cited by 67 per cent of respondents. About a quarter (27 per cent) of respondents said they’d use a lump sum and just four per cent said they’d use an annuity buy-in.

Interest in annuity buyouts is up considerably year over year, according to MetLife. In the 2017 survey, 57 per cent of respondents said they were interested in an annuity buyout and 46 per cent said the same in 2017.

The majority of plan sponsors considering an annuity buyout said they intend to tranche it by participant population. Retirees (54 per cent) are identified as the most common population for which sponsors are considering purchasing annuities, followed by terminated-vested participants (43 per cent) and all participants (30 per cent).

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The survey also found DB plan sponsors’ interest in risk transfers are being driven by actions by the pension benefit guarantee corporation (55 per cent), interest rate changes (42 per cent), funded statuses (29 per cent) and recent tax law changes (six per cent).

Two-thirds (67 per cent) of plan sponsors with de-risking goals said they’d consider a pension risk transfer to an insurer in the next two years. Among those likely to do so in that timeframe, the preparatory steps already taken included evaluating the financial impact of a pension risk transfer (77 per cent); holding discussions with key stakeholders (74 per cent); engaging in data review/cleanup (65 per cent); exploring the solutions available in the marketplace (59 per cent); and/or quantifying the cost of a pension risk transfer (59 per cent).