White Paper
Pension Risk Transfer Activity Soars as More Plan Sponsors Seek to Derisk
Considering a pension risk transfer? Some housekeeping may be in order...
Summary
The pension risk transfer (PRT) market has expanded significantly over the past decade, hitting record-high volume in 2023. Regulatory changes, increased costs, and volatile markets make managing a defined benefit (DB) plan challenging for corporate sponsors, leading many to pursue PRTs. While plan sponsors struggled to maintain funded statuses in the low-interest-rate environment that characterized much of the last decade, higher rates more recently have provided them with a window in which funded statuses are healthy, prompting many to derisk and seek opportunities to offload these liabilities altogether. More than two-thirds of plan sponsors (69%) tell Cerulli they are at least somewhat likely to derisk over the next 24 months. Seeking out asset managers that can help with derisking activities, such as offering guidance on glide paths, is a top priority for plan sponsors and beneficiaries alike. Plan sponsors with a well-developed PRT strategy, including data cleaning, leveraging consultants, and process management, will be best positioned to offload liabilities to insurers at a competitive price.
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Key Points
PRT Market Expansion
The PRT market has expanded significantly over the last decade due to regulatory changes coupled with rising interest rates and improved funded statuses. The volume of PRTs is expected to withstand any potential interest rate decreases.
Expect Additional Costs
Executing a PRT likely will incur additional costs for plan sponsors that have not been diligent with operations and record-keeping.
Improvement to Funded Statuses
Despite lackluster investment returns, corporate DB pensions have continued to see an improvement in their funded statuses, allowing many to derisk and pursue PRT transactions.
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