Retirement Plans, Annuity Pricing, and Insurer Solvency
April 15, 2020 by Michael Clark and James Walton
Advisors working with pension plan sponsors embarking on an annuity purchase should understand there are additional uncertainty and risks due to the impact of COVID-19. Awareness of market conditions and a robust insurer due diligence process can give clients a better outcome.
Over the last decade, de-risking a pension plan with an annuity buyout has become prevalent. In 2014, total buyout sales were under $10 billion; in 2019 they had skyrocketed to $28 billion.
Plan sponsors that have offloaded liabilities to insurers through this strategy have saved on administrative costs and lowered funded status risk. In addition to use of buyouts as a de-risking strategy, there has also been an uptick in the number of plan terminations which ultimately end in a buyout contract. It’s clear that annuity buyouts have served as a valuable strategy for pension plan sponsors.
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