Nearly One Third of Pensions Within Striking Distance of a Buyout

Nearly one third of pensions have a funding status of 95% or more, making a buyout or risk transfer deal two possibilities they could pursue, according to analysis of 500 plans with collective assets of more than $100 billion published by RiskFirst. The number of plans with this high level of funding status increased 50% in the first half of the year.

Should these plans succeed in increasing their long-term yields by 50 basis points (bps), there would be 40% of pensions with a funding status of 95% or more. Should their yields increase by 75 bps, there would be 46% of pensions within this funding level band.

“The pension plans modelled on our platform, which range in size from smaller plans to those with $8 billion in assets, are relatively typical of U.S. plans as a whole, so these findings can be regarded as being fairly representative of the market,” says Michael Carse, defined benefit pensions product manager at RiskFirst. “Thirty percent is, certainly, a sizeable number, and while risk transfer will, of course, only be the right option for some of these plans within striking distance, it wouldn’t take much of a change in sentiment to impact the appetite for bulk annuities in the current climate.”

There are several factors presenting favorable conditions for pensions, RiskFirst says, including accounting reforms, strong equity market performance, increased Pension Benefit Guaranty Corporation (BPGC) premiums, and the incentive for additional pre-funding in 2018 ahead of the upcoming corporation tax changes.

RiskFirst CEO Matthew Seymour adds: “For plans that are looking to transfer risk, those equipped with the tools to regularly and accurately monitor their funding levels and the broader market situation will be best positioned to capture the opportunities to de-risk as they arise.”