Corporate pension buyout sales in the United States leaped to nearly $6 billion in the third quarter of 2016, rising to the highest level for the that quarter since 1990, according to the LIMRA Secure Retirement Institute. Sales of pension liabilities by employer plans were greater than $1 billion for each of the last six quarters including the latest one, LIMRA said.

“Pension buyout activity in the third quarter jumped 80 percent, compared with prior year[s], and marks the sixth consecutive quarter to exceed $1 billion in sales. This is a first for this market,” Michael Ericson, analyst for LIMRA Secure Retirement Institute, said in a November 29, 2016, press release. “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.”

Pension liability sales in the first 9 months of 2016 were slightly higher than in the first 9 months of 2015, totaling more than $8 billion. As of September 30, 2016, 17,165 buy-out contracts were reported, up 0.7%, LIMRA said. The institute reported 225 plan sponsors had converted their defined benefit (DB) pension plans to group annuity contracts so far in 2016, which is a record, and 17% above the pace the year before. (See May 2016 newsletter story on 2015 pension risk transfer sales activity.)

A group annuity risk transfer allows an employer to transfer all or a portion of its pension liability to an insurer. In doing so, an employer can remove an often-threateningly large liability from its balance sheet and reduce the volatility of the pension’s funded status. Single-premium group, or terminal funding, annuity contracts are purchased by an employer that has decided to terminate its DB pension plan and is required by regulation to transfer participants’ accrued benefit liabilities into a life insurer’s irrevocable group annuity contract.

Several years of low interest rates and volatile financial markets have made it difficult for sponsors to keep DB plans fully funded. In addition, significant increases in premiums charged by the U.S. Pension Benefit Guaranty Corporation (PBGC) and adjustments in mortality tables recognizing rising longevity among pensioners have made pension risk transfers more attractive. “Despite a recent uptick in interest rates, we believe the trend to transfer pension risk to an insurer will continue in the fourth quarter,” Ericson said.

LIMRA Secure Retirement Institute conducts the Group Annuity Risk Transfer Survey each quarter with participation from 14 financial services companies that provide group annuity contracts for this market. The institute describes itself as a source of "unbiased research and education" about the retirement industry.