Pension de-risking occurred at a brisk pace in 2018. In fact, it was so robust, says a recent study, that if trends continue, a “significant portion” of the $3 trillion-plus of pension plan liabilities that have not been de-risked will be transferred in the next 10 years.
A variety of factors are behind the growing interest in de-risking, says MetLife in its 2019 Pension Risk Transfer Poll. The single largest, they say, is Pension Benefit Guaranty Corporation (PBGC) activity. Fifty-five percent say the PBGC is the catalyst for this de-risking plans. And the most influential PBGC action, MetLife reports, is its increase in premiums. Interest rate changes and funded status reaching a pre-determined level also figured heavily, it says, and were behind the interest in de-risking of 42% and 29%, respectively.
So how significant a portion? Just over three-quarters – 76% – of pension plan sponsors which plan to de-risk say that they will divest themselves of their plan liabilities. That’s divest – completely. Of that 76%, 10% plan to fully divest within two years. Nearly a quarter plan to do so in two to five years, and 43% expect to do so more than five years in the future.
So when they de-risk, how will they go about it? Two-thirds expect to use a buyout or in combination with lump-sum payments; 50% say they will use the latter, 17% the former. Just over one-quarter plan to accomplish that through lump-sum payments.
And plan sponsors are increasingly turning to using annuities in their buyouts, MetLife says. They report that interest in annuity buyouts has been increasing by double-digit percentages. Conversely, interest in lump-sum payments has been decreasing. MetLife says it fell from 34% in 2017 to 27% in 2018.
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