Study Finds Strong Amount of Pension Risk Transfer Activity

Nearly 15% of large DB plans experienced some type of risk transfer activity during a five-year period.

A Pension Benefit Guaranty Corporation (PBGC) study of defined benefit (DB) plans with more than 1,000 participants found 534 had some kind of risk transfer activity in the years 2009 to 2013.

This number includes 145 cash balance plans, of which 135 are collectively bargained plans, and 399 traditional DB plans. Fifty of those 534 plans went through a standard termination—which the researchers call the “ultimate form of risk transfer.”

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More than one million participants left the plans as a result of the events. Almost 400 of the events involved lump sum payments; others involved annuity purchases to transfer pension liabilities.

Information regarding risk transfer activity has generally been limited to press reports of events conducted by major companies, the researchers noted. The study is only an estimate of the level of risk activity since it concludes that a risk transfer has occurred indirectly by analyzing Form 5500 annual reports. Actuaries were cautious in declaring a pattern in the data; they think the actual number of risk transfers was probably higher than indicated by the study.

PBGC is interested in these events because:

  • Lower insurance premium payments may affect PBGC’s long-term financial condition;
  • Past risk transfer activity can help project future activity and help PBGC plan for its effects; and
  • Participants may elect to receive lump sums, and if so, policy makers will want to ensure they have the correct tools to manage their funds wisely.

The agency has begun collecting data about risk transfer activity from plans.

The study concludes that the plan sponsor’s financial condition didn’t determine risk transfer activity, nor did union status. But while union plans and non-union plans were equally likely to offer risk transfers, the percentage of union members accepting them was lower.