Employers Hand More Pension Risk to Insurers

U.S. employers used single-premium group annuities to shed more pension risk in the second quarter.

Pension risk transfer volume increased to $8.2 billion in the quarter, from $4.1 billion in the second quarter of 2017, according to new data from the LIMRA Secure Retirement Institute.

(Related: Investors Helping Life Insurers Shift to Pension Transfer Market: Analyst)

Insurers reported winning 108 new pension risk transfer contracts. The number of contracts signed in the year-earlier quarter was not immediately available.

Pension risk transfer volume for the first half of the year amounted to $9.6 billion, up from $5.5 billion.

Retirement institute analysts base the pension risk transfer figures on results from a survey of the 15 players in that market.

Wayne Daniel, head of U.S. pensions at MetLife, predicted in June, at a conference organized by S&P Global, that employers would transfer a total of about $20 billion in pension risk.

He estimated that employers have promised about $3 trillion in pension benefits and used group annuities to transfer only about $200 billion of that risk.

Interest rates have started to rise in the past few years. Higher rates help make pension risk transfers easier to complete, by improving the projected ability of a pension plan to pay the pension benefits it has promised to pay.

This quarter, the new Tax Cuts and Jobs Act is also pushing up pension buy-out activity, according to retirement institute analysts. One reason is that the TCJA is cutting the corporate tax rate to 35%, from 21%.

For-profit employers can deduct pension plan contributions from their taxable income. To complete a pension risk transfer, an employer often has to pump cash into the plan first, to make up for a projected funding gap.

For profitable for-profit employers, topping off a plan this year, rather than next year, will do more to cut those employers’ tax bills.

— Read Prudential Signs Jumbo Pension Risk Transfer Client, on ThinkAdvisor.

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