Market Activity
After a record-breaking year in 2023, pension buyout sales maintained strong momentum into 2024, reaching $14.2 billion in the first quarter. This marks the highest Q1 volume ever recorded and reflects a 124% increase from the $6.3 billion in Q1 2023. A few jumbo transactions largely contributed to the increase in premium growth. The number of buyout contracts sold rose to 144 in Q1 2024, up from 116 in the same period last year. The outlook for the remainder of the year is optimistic, with total annual sales projected to exceed $35 billion once again.
What we’re seeing
Pension buyout activity remained very active in Q2 after a strong first quarter, Including at least one transaction larger than $1 billion. As the Federal Reserve’s plan is to lower interest rates in 2024, plan sponsors are eager to get into the market and take advantage of the high interest rates and PBGC premium savings. Annuity purchase pricing remains competitive in 2024.
Litigation continues for class action lawsuits in 2024 currently involving four plan sponsors who have purchased annuity contracts through pension risk transfer. Two plan sponsors have already filed motions to dismiss the class action lawsuits. We have not seen this affect insurer or plan sponsor appetite for de-risking.
For retiree only cases, pricing continues to average 99% of the “fair” value of benefit liability¹, while plan termination cases which include in-pay and deferred annuities average approximately 101%².
Looking Forward
Plan terminations and retiree carveouts continue to remain attractive to plan sponsors in Q2. As a result, 2024 pension risk transfer activity is expected to remain strong throughout the year. Plan sponsors will do well to plan ahead, give the market enough time to schedule their transaction, and avoid the busy year-end rush when insurer capacity can dry up. One new insurer has begun bidding on cases in 2024, with additional insurers considering entering the pension risk transfer market. This would increase competition, open up capacity, and drive attractive pricing for plan sponsors looking to de-risk their pension plans in the future.
The Department of Labor’s report to Congress on the 95-1 guidelines, as required by the provisions of SECURE 2.0, was recently published largely hitting on all of the items addressed at last summer’s ERISA Advisory Council meetings. For a quick summary, check out our post on LinkedIn.
For more information on pension risk transfer timing, check out the short video on our website.
[1]Measured using FTSE curve and best estimate of underlying mortality.
[2]Based on plan demographics and the mix of deferred and in-pay annuities.