Corporate pension plan buyouts reached $1.084 billion in the first quarter of 2016 according to a LIMRA Secure Retirement Institute sales survey. This is interpreted as a clear sign that companies are eager to limit the amount of risk in their pension plans.
The US Group Annuity Risk Transfer Survey, released in May of this year , notes that this is the first time sales have topped $1 billion in the first quarter since 2008, most notably with first-quarter buyouts increasing 21% over first quarter 2015. Traditionally, buy-out sales are low in the first quarter, and increase slightly in the second and third, with the most sales activity appearing in the fourth. LIMRA suggests that Pension Benefit Guarantee Corporation (PBGC) premium increases and market volatility are the factors driving an active first quarter 2016.
A shaky market and low interest rates present hurdles for companies trying to increase funding for group pensions, according to Michael Ericson, an analyst for LIMRA. While a defined benefit (DB) pension plan should add equity, years of low interest rates and higher PBGC premiums have made equity building difficult and may be the main reason why 68 companies purchased buy-out contracts in Q1, 2016.
LIMRA Secure Retirement Institute publishes the Group Annuity Risk Transfer Survey every quarter. To date, the 13 financial services companies that provide all the group annuity contracts for the U.S. market participate in the survey.