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The latest U.S. Group Annuity Risk Transfer SurveyPRT Chart 20161Q from LIMRA Secure Retirement Institute shows group pension buy-out sales reached $1.084 billion in the first quarter of 2016. This represents the first time sales have topped $1 billion in the first quarter since 2008 and marks the fourth consecutive quarter in which sales have exceeded $1 billion.

While a defined benefit (DB) pension plan adds equity to a company, years of low interest rates and increasing Pension Benefit Guarantee Corporation (PBGC) premiums have motivated more companies to purchase a group annuity contract and transfer their pension liabilities to an insurer.  A group pension buy-out allows an employer to transfer all or a portion of its pension liability to an insurance company.

First quarter buy-outs in 2016 increased 21 percent over first quarter 2015.  This is noteworthy because buy-out sales are typically low in the first quarter and increase slightly in the second and third quarters. Most sales activity happens in the fourth quarter creating a “tent pole” effect compared to the rest of the year. (See Chart)

Institute analysis suggests analysis suggests PBGC premium increases and market volatility are the key reasons for the busy 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,” said Michael Ericson, analyst for LIMRA Secure Retirement Institute. “Those factors are the main reason 68 companies purchased buy-out contracts in the first quarter.”

Ericson also said these companies show that increasing numbers of small and medium-size plans are transferring their pension risk, in addition to large ones.  Sales growth in pension buy-outs can be heavily influenced by jumbo contracts (defined as larger than $1 billion.)

LIMRA Secure Retirement Institute publishes the Group Annuity Risk Transfer Survey every quarter. To date, the 13 financial services companies that provide all the group annuity contracts for the U.S. market participate in the survey.  

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