A LIMRA Secure Retirement Institute (SRI) study “finds 8 in 10 private-sector DB plan sponsors (who also offer a defined contribution plan) are at least somewhat interested in a pension risk transfer transaction (PRT). Four in 10 plan sponsors say they are very interested in PRT, marking a 12 percentage-point increase from plan sponsors surveyed in 2014.”
What is driving this interest? Cost! Benefit plan sponsors are increasingly concerned about the cost of providing a retirement benefit. We know the trend has been for private plans to be shuttered, and according to the study, 46% of the companies that offer both a DB and DC vehicle have frozen their DB plan.
The pace of PRTs has accelerated in the last 18 months. What had been a strategy dominated by the big boys – Verizon, GM, AT&T, etc – has now migrated to small and midsized plans. SRI indicates that more than $1 billion in the last 18 months and the number of contracts has increased 76% from 2014.
But, we at Ryan ALM feel that the PRT transactions can be expensive. In fact, when comparing PRTs to a cash flow matching strategy for the 1-5 year liabilities a plan sponsor can save an estimated 3%-4% relative to the PRT cost. If longer-dated liabilities are also being immunized, the savings can be closer to 10% to 12%. That is quite a savings in $ terms on that >$1 billion in transactions. Please reach out to us if you’d like to get a better feel for how the savings are achieved.