Employers Hand More Pension Risk to Insurers

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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