Pension Buy-Out Sales See 120% Increase

Group pension buy-out sales saw a 120% increase, reaching $8.5 billion in 2014, compared to the $3.8 billion total in 2013.

Sales in the pension risk transfer buy-out market have exceeded $3.5 billion for three consecutive years, according to survey results from LIMRA Secure Retirement Institute. Buy-out contracts increased to 277 last year, up from 217 in 2013. However, the number of contracts do not tell the complete story, according to Michael Ericson, analyst for LIMRA Secure Retirement Institute. A few large contracts can significantly affect sales in the market.

As a result of two large buy-out deals involving Bristol-Meyers Squibb and Motorola in the fourth quarter, total assets in the group annuity risk transfer market, including buy-ins, buy-outs and other transactions, topped $128 billion in 2014, which is the highest ever reported. The two companies transferred their group pension obligations to Prudential and the sales represented more than half of the $8.5 billion total in pension buy-out sales for the year.

Total buy-out sales last year were the third highest since LIMRA began tracking the statistic in 1986. Defined benefit pension plans have seen years of low interest rates and are facing increasing Pension Benefit Guarantee Corporation (PBGC) premiums, which has encouraged more companies to purchase a group annuity, transferring their risk to an insurer.

“The growth in this market is also attracting new players,” says Ericson. “Two new companies entered the market in 2014, bringing the total [of buy-out contract providers] to 11.”