Q1 pension buyouts surpass $1 billion

Pension buyout sales reached $1.084 billion during the first quarter, up 21 percent from $890 million during last year’s first quarter. Sales topped $1 billion during the first quarter for the first time since 2008, according to data compiled by LIMRA’s Secure Retirement Institute. 

Buyout sales are typically low in the first quarter and increase throughout the year, with sales peaking in the fourth quarter. A trend of low interest rates and increasing Pension Benefit Guarantee Corporation (PBGC) premiums have prompted companies to purchase group annuity contracts and transfer pension liabilities to insurers, according to a blog post from LIMRA SRI. The institute speculates that PBGC premium increases and market volatility are the primary reasons for the uptick in the first quarter.

“Along with large increases in PBGC premiums, plan sponsors who try to increase funding for their group pensions face an uphill challenge with uncertain market returns and low interest rates,” Michael Ericson, analyst for LIMRA Secure Retirement Institute, wrote in the blog. “Those factors are the main reason 68 companies purchased buy-out contracts in the first quarter.”

Ericson added that increasing numbers of small and medium-size plans are joining larger plans in transferring their pension risk. Sales growth in pension buyouts can be heavily influenced by jumbo contracts larger than $1 billion.

This is the fourth consecutive quarter in which pension buyout sales have exceeded $1 billion. Last year, Q4 sales were $5.63 billion, Q3 sales were $3.285 billion and Q2 sales were $3.828 billion. 

LIMRA SRI publishes the Group Annuity Risk Transfer Survey each quarter, including data from the 13 financial services companies that provide all the group annuity contracts for the U.S. market.