A study released on June 6 by the Life Insurance Marketing and Research Association (LIMRA) shows a 25 percent increase in pension risk transfer contracts in the first quarter of this year. A LIMRA statement discussing the study pointed to a record $14.6 billion in 146 contracts in companies shifting their lifetime pension obligations to annuities.
LIMRA said the increase is attributable to a trend towards de-risking driven by market performance and high interest rates. This year’s record increase in de-risking contracts follows last year’s then-record quarter-one high, when de-risking contracts rose 19 percent over the previous first-quarter high.
Specifically, single-premium buy-out transactions made up $14.2 billion of the $14.6 billion, while $435.6 million came from two buy-in contracts. Two major de-risking transactions involved Verizon Communications and Shell USA.
A study on de-risking by the Department of Labor’s (DOL’s) Employee Benefits Security Administration (EBSA) is expected shortly. The study, which is late—it was required by Congress by December 2023—will include recommendations for updates to existing annuity transfer guidance. It is also expected to call for more clarity from industry stakeholders.
Multiple class action lawsuits are pending, challenging companies’ selection of annuity providers to handle their pension payment obligations. A number of large companies, including AT&T, Alcoa USA and Lockheed Martin, are involved in the lawsuits, which allege breach of fiduciary duty.
Prospects: De-risking is a growing trend and one that has captured some interest in both Congress and DOL. While there are no currently pending legislative proposals addressing what some lawmakers perceive as the risk involved in shifting an employer’s pension payment obligation to an annuity provider, that could change. With a major tax bill expected next year, and if the EBSA report raises issues regarding risk to beneficiaries, this could turn into a significant legislative issue.
NAIFA Staff Contact: Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org.
