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August 25, 2015 at 01:50 PM
Sales of pension buyouts totaled $3.8 billion in the second quarter of 2015, a record for that period, according to the LIMRA Secure Retirement Institute.
All told, there were 62 buyout deals last quarter. The record second quarter sales is notable because the sales cycle for pension buyouts tends to be seasonal, with most activity occurring in the fourth quarter.
Sales were up 700 percent from Q2 2014. In February, Kimberly-Clark Corp. announced it was transferring its obligations to about 21,000 U.S. retirees to annuities bought by Mass Mutual Life Insurance Co. and Prudential Insurance Co.
The Dallas-based producer of brands like Huggies and Kleenex also contributed up to $475 million to its pension fund as part of the deal. All told, pension obligations were reduced $2.5 billion subsequent to the deal.
While the Kimberly-Clark deal was likely among the largest by size in the quarter — Limra does not name companies or offer specific details of the transactions — the think tank’s Group Annuity Risk Transfer Survey showed an increase in small and midsized company pension conversions.
“Even without jumbo deals, there are just more plan sponsors looking to convert their pensions to group annuities,” said Michael Ericson, research analyst for the Secure Retirement Institute.
“All this activity suggests that 2015 will be another strong year for pension buy-outs,” he added.
Increasing mortality assumptions, falling funding ratios in 2014 and rising premium obligations to the Pension Benefit Guaranty Corp. are the conditions conspiring to motivate more pension de-risking deals, according to pension analysts. One recent study from Mercer suggested that half of plan sponsors will be considering some form of de-risking in the next two years.
