PBGC study finds risk transfer pension plan events significant

The amount of pension plan risk transfer (or “de-risking) events in recent years is significant because more than one million participants left plans as a result of the events, according to a study completed by Pension Benefit Guaranty Corporation (PBGC) actuaries. The PBGC explained that risk transfer enables companies to eliminate their pension benefit obligations either by paying off participants with a lump sum or by buying annuities from insurance companies to replace the company pension. The PBGC is interested in risk transfer events because, among other things, lower insurance premium payments could affect its long-term financial condition, and past activity can help project future activity and allow the PBGC to plan for the activity’s effects.

The actuaries looked at patterns in the data on Form 5500s that pension plan sponsors filed with the government from 2009 – 2013 to identify companies that had recent risk transfers. The study found that over 500 of about 3,600 larger plans that the study looked at had risk transfer events during the five-year period. The PBGC explained that this finding is significant because more than one million participants left the plans as a result of the events. Almost 400 of the events involved lump-sum payments, and the remaining involved annuity purchases to replace the company pension plan. Neither the plan sponsor’s financial condition nor union status determined risk transfer activity, according to the study. However, while union plans and non-union plans were equally likely to offer risk transfers, the percentage of union members accepting them was lower.

The study was only an estimate of the level of risk activity since the PBGC’s conclusion that a risk transfer had occurred was based on analysis of Form 5500 annual reports. In addition, because the actuaries were cautious in declaring a pattern in the data, they think the actual number of risk transfers was probably higher than indicated by the study. The PBGC noted that it has started collecting data from each pension plan detailing their risk transfer history to accurately determine patterns, and it expects to get this information annually going forward.

Source: PBGC Blog, December 9, 2015.

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