Buyouts, Lump Sums Prominent Among PRT Steps

Pension plans may not be subject to volatility in quite the same way as defined contribution plans, but nonetheless they face uncertainties and the vagaries of external factors too. That has some plans considering how to mitigate that risk. MetLife in its most recent Pension Risk Transfer Poll sheds some light on pension risk transfers (PRTs), what may be motivating them and what employers are thinking.

The factors motivating the interest in preparing for, if not shifting, that pension risk are the following, according to MetLife:

• volatility in the fixed income and equity markets;

• low interest rates;

• higher Pension Benefit Guaranty Corporation premiums; and

• new pension plan mortality assumptions.

Almost 50% of those studied are preparing for an eventual PRT. Among them:

• 65% evaluated the financial impact of a pension risk transfer;

• 62% explored the PRT solutions available in the marketplace; and

• 62% engaged in data review/cleanup.

The PRT activity most likely to be used include the following:

• 46% plan to use only lump sum payments to participants to settle all participant claims;

• 37% plan to use lump sum payments and a buyout of the plan; and

• 9% plan to use a buyout only.

Among those planning buyouts:

• 57% overall are considering it in the next two years;

• 63% of plans with assets of $250 million-$499 million are considering a buyout by 2017; and

• 77% of plans with assets of $500 million to $1 billion are planning such an action by that time.

In the Pension Risk Transfer Poll, MetLife studied the responses of pension plan from Fortune 1000TM companies, as well as the next largest 2,000 companies by plan size.