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2019 U.S. Pension Risk Transfer Annuity Settlement - Market Update

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The Pension Risk Transfer (PRT) Market is Growing

The 2018 pension risk transfer annuity settlement market produced another year of significant growth with close to $27.5B of sales activity. This momentum began with corporate tax reform tailwinds, which triggered plan sponsors accelerating required pension contributions. Some sponsors strategically used those monies for pension settlements.

Many similar trends from 2017 continued into 2018. Such trends included “targeted retiree” deals where plan sponsors settled a portion of their in-pay liability. Aon observed that a growing number of plan sponsors were repeat buyers implementing their second, third, or even fourth deal. There were also some notable deals announced, including Bristol-Myers’ plan termination, Lockheed Martin’s combined buyout and buy-in and FedEx’s $6 billion annuity lift-out. The FedEx announcement was the largest transaction since 2012. It is noteworthy that all three deals used independent fiduciaries to represent plan participants’ interests.

Other observations to note:

  • Insurer participation remained relatively stable in 2018. There was one new entrant, Great American, in the small and middle market.
  • More insurers transacted, beneficially for sponsors, in different market segments than last year. Also, no insurers exited the PRT market as witnessed in some prior years.
  • Deal cost, based on observable market pricing ranges, averaged approximately 102% over FTSE Pension Discount Curve liability for all-retiree deals.
  • Aon witnessed highly competitive pricing on larger deals where some transacted prices were lower than Projected Benefit Obligation (PBO).
  • Finally, we foresee continued competitive PRT annuity pricing persisting through 2019.

Aon continues its proud and extensive record of supporting U.S. PRT annuity settlement activity, as both plan sponsor and fiduciary advisor. First quarter 2019 activity already appears substantially higher than last year. However, let us first review the 2018 landscape with plan sponsors and other stakeholders.

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