Pension Plan Sponsors Warming Up to Annuity Buyouts: MetLife

A new survey from MetLife finds that plan sponsors’ interest in pension risk transfer will continue to grow following a robust year for de-risking in 2018.

Seventy-six percent of defined benefit plan sponsors with de-risking goals said they intended to completely divest all of their company’s DB plan liabilities at some point in the future, and 33% intended to do so in the next five years.

“The poll findings indicate a trend in increased pension risk transfer activity as we anticipate plan sponsors will want to proactively deal with the cost and volatility of their plans,” Wayne Daniel, senior vice president and head of U.S. pensions at MetLife, said in a statement.

“As a result, many will begin to look more closely at the $3 trillion of DB plan liabilities that have not yet been de-risked and begin to evaluate how they can address this.”

Four out of five plan sponsors surveyed reported that they were likelier to consider an annuity buyout now that there had been several big, well-publicized instances of major corporations entering into annuity buyout deals with insurers.

Annuity buyouts are becoming increasingly popular, the survey found. Sixty-seven percent of plan sponsors said they would use these solutions to de-risk, an increase of 10 percentage points from MetLife’s 2017 survey results, and up 21 points since MetLife’s first pension risk transfer poll in 2015.

A majority of plan sponsors in the new survey said they intended to tranche annuity buyout transactions by participant population. Fifty-four percent said they were looking at retirees, and 43% at terminated-vested participants. Only 30% said they would secure a buyout for all participants.

Plan sponsors’ interest in offering lump sums to ex-employees appears to be on the wane. Twenty-seven percent of survey respondents said they were considering only offering a lump sum, compared with 34% that said that in the previous year’s poll.

MMR Research Associates conducted the online survey in late summer in cooperation with Strategic Insight, owner of PLANSPONSOR and CIO magazines. Survey responses came from 102 DB plan sponsors with de-risking goals, 52% of which reported plan assets of $500 million or more, and 48% with plans that were at least 90% funded.

The survey results showed that many plan sponsors had already taken steps to prepare for de-risking. For the 67% of plan sponsors that said they were considering a risk transfer within the next two years:

• 77% had evaluated the financial effect of a pension risk transfer
• 74% had held discussions with key stakeholders
• 65% had engaged in data review and cleanup
• 59% had explored the solutions available in the marketplace and/or quantified the cost of a pension risk transfer.