Propelled by two major pension buyouts, total annuity de-risking sales reached $8.5 billion in 2014, a 120 percent increase over the previous year, according to LIMRA's Secure Retirement Institute's Group Annuity Risk Transfer Survey.
The total amount of liabilities transferred from sponsors' books was $128 billion in 2014, the highest ever recorded.
Deals with Bristol-Meyers Squibb and Motorola, both landed by Prudential, represented more than half of last year's sales, which saw the number of buyout contracts increase to 277, from 217 in the year before.
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That two agreements accounted for such a large portion of last year's sales does not diminish the strength of the trend, according to Michael Ericson, a LIMRA analyst.
"After many years of staying in the $1 billion to $2 billion range, sales in the pension risk transfer buyout market have eclipsed $3.5 billion for three consecutive years," he said in a statement.
The $8.5 billion in sales was the third-highest on record since LIMRA began tracking buyouts in 1986.
In 2012, total sales came to $35.9 billion, the most ever recorded, thanks to massive contracts with General Motors and Verizon, two deals which represented nearly all of the de-risking sales that year. The figures for that year were seen as an anomaly.
LIMRA and other analysts say years of low interest rates, along with higher premiums from the Pension Benefit Guarantee Corp., have encouraged more sponsors to de-risk their pension obligations.
And higher mortality rates, released by the Society of Actuaries last fall, will only further encourage the trend, say experts.
Nearly two-thirds of sponsors in a recent Aon Hewitt survey said they plan to take some action to de-risk pension obligations in 2015. Nearly half said they have already offered terminated employees a lump-sum buyout.
Sponsors' increasing de-risking activity has captured the attention of regulators.
PBGC is in the process of writing new rules that would require sponsors to report all buyout activity as soon as they engage the process. The latest comment period on the new regulations closed Feb. 15.
Also last month, the Government Accountability Office issued a report critical of the existing buyout process, saying plan participants often receive too little information on the potential ramifications of replacing lifetime benefits when sponsors present the option to take a lump-sum payment.
Also last month, the Fifth Circuit Court of Appeals in New Orleans heard arguments from Verizon employees in Lee vs. Verizon, a class-action challenging the legality of Verizon's 2012 buyout agreement with Prudential on the ground that the arrangement was not in compliance with the Employee Retirement Income Security Act or PBGC's "standard termination procedures," according to court documents.
Plaintiffs are also alleging the transfer is not legal because it deprived the 41,000 employees impacted by the deal PBGC guaranties of their pensions.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
