NEARLY HALF OF LARGE PLAN SPONSORS HAVE TAKEN PREPARATORY STEPS FOR AN EVENTUAL PENSION RISK TRANSFER
New MetLife Poll Finds 45% of Defined Benefit Plan Sponsors are Getting Ready to Act
NEW YORK, October 22, 2015
As plan sponsors continue to grapple with how best to manage the risks associated with their defined benefit (DB) pension plans, MetLife’s new 2015 Pension Risk Transfer Poll, released today, found that nearly half of large plan sponsors (45%) have taken proactive steps to prepare for an eventual pension risk transfer. Among those plan sponsors who are very or somewhat likely to engage in pension risk transfer, the percentage who have taken preparatory steps rises to 72%.
“Plan sponsors are rolling up their sleeves and taking action when it comes to reducing risk for their DB plans,” said Wayne Daniel, senior vice president and head of U.S. Pensions at MetLife. “Of those plan sponsors who have taken preparatory steps, approximately two-thirds have evaluated the financial impact of a pension risk transfer (65%); explored the pension risk transfer solutions available in the market place (62%); and/or, engaged in data review and cleanup (62%).”
A key step in preparing for a pension risk transfer transaction is obtaining agreement among decision-makers about how to approach derisking. According to the survey, plan sponsors identify key stakeholders as members of their company's C-suite (including the CEO, CFO, etc.) (87%); plan actuaries (72%); attorneys/legal counsel (68%); ERISA/plan governance committee members (62%); and, outside consultants/advisors (45%).
The top catalysts for a pension risk transfer to an insurance company are additional Pension Benefit Guaranty Corporation (PBGC) premium increases (51%), the impact of the new mortality tables issued by the Society of Actuaries in 2014 (45%) and the funded status of their plans reaching a predetermined level (34%).
When it comes to executing a successful pension risk transfer transactions, plan sponsors are focused on communication. The poll found that 31% of plan sponsors indicated that communication was the most important factor for ensuring success, followed by the price/cost of the transaction (26%), among other factors.
“Successful communication includes communicating with both plan participants and the insurance company to which liabilities are being transferred,” added Daniel. “Communications play an important role in helping participants feel confident that their benefit will be there when they need it. The poll found nearly half of plan sponsors (49%) plan to communicate with plan participants about how their benefits will be paid once a buyout has been finalized with a specific insurer, while 36% will communicate with plan participants once they make the decision to transfer the liabilities to an insurer.”
A Growing Interest in Pension Risk Transfers
These findings are especially significant when looking at the number of plan sponsors interested in employing pension risk management strategies. When asked what type of de-risking activity they would consider, nearly half of DB plan sponsors (46%) would most likely transfer risk with an annuity buyout, including 37% who would consider a buyout in combination with a lump sum offer. Of those planning to use a pension buyout, over half of plan sponsors (57%) are considering a pension risk transfer option to an insurance company for their DB plan in the next two years. This percentage increases to 63% for plans with DB plan assets of $250-$499 million and 77% for plans with DB assets of $500 million to $1 billion.
About the Poll
The MetLife 2015 Pension Risk Transfer Poll was fielded between August 24-September 8, 2015. MetLife commissioned MMR Research Associates, Inc. to conduct the online survey in cooperation with Asset International, Inc. There were 229 defined benefit (DB) plan sponsors from among the Fortune 1000TM companies, as well as the next largest 2,000 companies by DB plan asset size. Three in four respondents (72%) reported DB plan assets of $250 million or more, with 35% having assets greater than $1 billion.o
MetLife, Inc. (NYSE: MET), through its subsidiaries and affiliates (“MetLife”), is one of the largest life insurance companies in the world. Founded in 1868, MetLife is a global provider of life insurance, annuities, employee benefits and asset management. Serving approximately 100 million customers, MetLife has operations in nearly 50 countries and holds leading market positions in the United States, Japan, Latin America, Asia, Europe and the Middle East. For more information, visit www.metlife.com.