Nearly Half of Corporate Pensions Considering
While a majority of plan sponsors are hedging
interest rate exposure using LDI strategies, many are also
turning to lump-sum distributions to reduce the absolute size of
pension liability, a survey found.
By Javier Simon | PLANSPONSOR | December 01, 2016
This is according to the 2016 Defined Benefit Plan
Trends Survey by investment consulting firm NEPC.
For those plan sponsors considering other risk
reduction measures, 27% said they plan to issue annuities.
Twenty-five percent are considering higher contributions.
Thirty-nine percent of respondents weren’t planning any changes
at the time the survey was taken.
“The real game changer was what occurred at the end
of last year with the PBGC rate premium decision, and plan
sponsors have been scrambling on what to do ever since,” observes
Brad Smith, partner in NEPC’s Corporate Practice. “Our
expectation is that this anxiety about the rate premiums will
continue, regardless of who is in the White House. We continue to
advise clients on best approaches to improve or maintain their
funded status in a low-yield environment, even with a slight rate
increase expected before the end of the year.”
As projected, longevity increases are affecting
pension funding. In 2016, the number of defined benefit plans
with a funded status less than 80% increased to 28%, from 21% in
2015. Forty-three percent of plans have a funded status of at
Thirty-four percent of respondents considered
issuing debt to improve funded status; 47% of these plans have a
funded status of less than 80%.
The firm also points out that while a majority of
plan sponsors (69%) are hedging interest rate exposure using
liability driven investing (LDI) strategies, many are also taking
action to reduce the absolute size of the sponsor’s pension
liability by offering lump sum distributions to participants. The
38% of plans not pursuing LDI say they are waiting for interest
rates to rise (34%) or are maintaining a total return approach as
the plan remains open (29%).
In the past six years, plan sponsors using LDI have
materially increased their LDI allocations—36% have an allocation
greater than 50% or more today, versus nine percent in 2011, the
survey finds. Click Here to
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LIMRA: Corporate pension buyouts soar in third
U.S. corporate pension plan buyouts reached $5.9
billion in the third quarter of 2016, a LIMRA Secure Retirement
Institute sales survey found. By
Rob Kozlowski | Pensions&Investments| December 01, 2016
It is the sixth consecutive quarter that activity
has exceeded $1 billion in group annuity purchases and is the
largest amount of third-quarter activity since 1990, according to
a news release announcing the results of the survey. In the first
and second quarter of this year — traditionally the quarters
every year that see the least amount of activity — buyouts
totaled slightly more than $1 billion each.
Transactions in the third quarter included WestRock
Co.'s purchase of a group annuity contract from Prudential
Insurance Co. of America. The Norcross, Ga.-based company
transferred about $2.5 billion of its U.S. defined benefit plan
Another large transaction was PPG Industries Inc.,
Pittsburgh, transferring a total of $1.6 billion in pension
liabilities to Massachusetts Mutual Life Insurance Co. and
“Pension buyout activity in the third quarter jumped
80%, compared with (the) prior year,” said Michael Ericson,
analyst for LIMRA Secure Retirement Institute, in the release.
The third quarter of 2015 saw about $3.3 billion in buyout
“Traditionally, buyout sales have experienced the
largest growth in the fourth quarter. However, given the
remarkable sales this quarter, third-quarter sales may be higher
than fourth quarter in 2016,” he added.
For the nine months ended Sept. 30, activity totaled
$8.06 billion, slightly higher than the first nine months of
2015, which saw $8 billion.
Every quarter, the LIMRA Secure Retirement Institute
surveys the 13 financial services companies that provide all the
group annuity contracts for the U.S. for its Group Annuity Risk
Contact Rob Kozlowski at firstname.lastname@example.org
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