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DB Plan Sponsors Foresee More Robust PRT Activity

Fifteen percent say recommendations from their consultant or independent fiduciary is an important consideration when selecting an annuity provider.

By Rebecca Moore editors@strategic-i.com | September 07, 2017
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Nearly nine in ten defined benefit (DB) plan sponsors (87%) believe the level of 2017 pension risk transfer (PRT) activity will be at least as, or even more, robust than in 2016, according to MetLife’s 2017 Pension Risk Transfer Poll.

Nearly all plan sponsors (92%) are aware that, although the length of time it takes to complete a PRT transaction will vary by plan, the entire process typically takes six to 18 months. To ensure that they are ready to act, more than six in 10 plan sponsors (61%) have taken preparatory steps for an eventual PRT transaction, up from 45% in 2015. The percentage of plan sponsors that have taken preparatory steps rises to 79% among plan sponsors that are likely to engage in PRT to an insurer in the next two years.

The most common preparatory steps taken include an evaluation of the financial impact of a pension risk transfer (71%); discussions with key stakeholders (67%); data review/cleanup (64%); and, exploration of the PRT solutions available in the marketplace (59%). Among those planning for a buyout or buyout in combination with a lump sum, one in five (20%) has already secured an illustrative bid from an insurer. According to MetLife, securing an illustrative bid is a strong indicator of intent to transact in the near future.

The top catalysts driving sponsors to consider transferring pension obligations to an insurer are Pension Benefit Guaranty Corporation (PBGC) actions (64%)—this includes PBGC premium increases (58%) and a change in the PBGC premium methodology to the risk-based formula (29%); interest rates (50%); and, the impact of changes to mortality tables proposed by the U.S. Internal Revenue Service (IRS) in 2016 for use starting in plan years beginning on or after January 1, 2018 (34%). Other notable factors for initiating PRT include the regulatory environment (29%) and funded status reaching a pre-determined level (26%).

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