As the U.S. pension risk transfer market continues to break records, findings from MetLife’s 2023 Pension Risk Transfer Poll, released today, indicate that momentum will continue in the coming years. Nine in ten companies (89%) plan to completely divest all of their defined benefit (DB) pension plan liabilities and, among those plan sponsors who intend to fully divest their liabilities, they are likely to do so in an average of 4.1 years.
“The current environment is favorable for derisking and, if these conditions persist, we anticipate continued growth in the market,” says Elizabeth Walsh, vice president, U.S. Pensions, MetLife. “Inflation and rising interest rates continue to be catalysts for plan sponsors to derisk, which is a major shift from the catalysts cited in our inaugural 2015 poll, when plan sponsors reported that Pension Benefit Guaranty Corporation (PBGC) premium increases and the impact of then-new Society of Actuaries’ mortality tables were driving activity.”
The 2023 Poll found that macroeconomic concerns are the primary catalysts for initiating a pension risk transfer to an insurer. These include inflation (49%), market volatility (42%), rising interest rates (42%) and recessionary concerns (31%). Other catalysts include an increase in their volume of retirees (42%) and favorable annuity buyout market pricing (35%).
Taking Action
According to the Poll, plan sponsors are taking concrete, proactive steps to prepare for potential future transactions. A majority of plan sponsors, 94%, report that their company is weighing their DB plan’s value against the cost of the benefit. Ninety-one percent of plan sponsors say the company’s DB plan is receiving significant attention from corporate management.
In addition to assessing the value of the benefit, over the past two years plan sponsors have also taken practical steps to ready their plan for derisking. These steps include improving their plan’s data quality (58%), increasing plan contributions (56%), having their C-suite executives more involved in DB plan management (37%), and offering a lump sum distribution to terminated-vested participants (24%).
Planned PRT Activity
When they are ready to transact, the Poll found almost 58% of plan sponsors will use an annuity buyout, either on its own or in combination with a lump sum. Only 18% will use an annuity buy-in. Among those seeking an annuity buyout, about half of plan sponsors (49%) will do a buyout through a retiree lift-out, while only 21% of plan sponsors say it is due to plan termination activity.
Paths to Derisking
According to the Poll, more than three-quarters of plan sponsors, 77%, are aware that they have the ability to split a single annuity buyout transaction with more than one insurer and, if the transaction were sizable enough, a majority, 88%, say they would split their transaction.
“Split deals make sense for very large and complex transactions and we are likely to see more interest in these types of deals moving forward,” says Walsh. “The Poll found that the average size annuity buyout transaction would need to be above $400 million for plan sponsors to consider splitting it.”
When asked about how they would approach their derisking activity, more than half of plan sponsors surveyed plan to transfer risk through a series of annuity buyout transactions (55%) versus a single annuity buyout transaction (45%).
About the Study
The MetLife 2023 Pension Risk Transfer Poll was fielded between July 5 and July 27, 2023. MetLife commissioned MMR Research Associates, Inc. to conduct the online survey. Survey responses were received from 250 DB plan sponsors with $100 million or more in plan assets who have de-risking goals. This included 41% of plan sponsors who reported DB plan assets of $500 million or more. To read the full MetLife 2023 Pension Risk Transfer Poll report, visit http://www.metlife.com/2023prtpoll.
About MetLife
MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the world’s leading financial services companies, providing insurance, annuities, employee benefits and asset management to help its individual and institutional customers build a more confident future. Founded in 1868, MetLife has operations in more than 40 markets globally and holds leading positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.
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