Economics, Regulations Spur Pension Risk Transfers; Annuities an Outlet

By John Iekel • August 16, 2017 • 0 Comments
Employers with defined benefit plans have long sought to reduce the costs of offering them and handling associated uncertainties. Recent studies discuss the growing trend of turning to pension risk transfers to relieve the pressure and highlight purchase of group annuities as one of the ways they seek to do that.

There are a variety of factors behind the increasing popularity of pension risk transfers, says Prudential in its recently released studies, “Economic and Regulatory Climate May Spur Pension Risk Transfer Agreements” and “Pension Risk Transfers: CFOs Indicate Satisfaction and Are Likely to Do More.” Chief among them are the economy, the changes that have occurred and are expected in the regulatory environment, managing pension costs and increasing Pension Benefit Guaranty Corporation premiums.

In a May 2017 survey CFO Research conducted in conjunction with Prudential of 80 senior finance executives at companies that sponsor DB plans, more than 40% said their firms had already completed a pension risk transfer.

One of the ways these employers seek to make these transfers is through purchasing a group annuity. And nearly half of those that have not yet done so, says Prudential, have discussed it with an outside provider or advisor. Further, 20% reported that they expect to do so in the next two years. Even if the Trump administration enacts corporate tax cuts, 55% of respondents said it is very likely they will use their tax savings to increase funding of their pension plans, as well as execute a partial or full pension risk transfer through a group annuity.

Satisfaction is high among those that have turned to the purchase of group annuities, according to Prudential and CFO Research. They report that 83% are satisfied with all aspects of the agreements, and 72% said they are likely to undertake more such transactions.