The hot trend in defined-benefit pensions last year involved companies offloading some of the risk involved in their plans by doing lump-sum buyouts or annuity purchases. So far in 2013, announcements of such risk transfers have subsided, but consultants said they expect a robust number of transactions, especially lump-sum buyouts, this year.
Companies’ de-risking moves are occurring amid widespread underfunding of pension plans as persistently low interest rates boost plan liabilities, limiting the positive impact the stock market rally has had on plan assets. The situation improved during the first quarter of this year, but many plans remain significantly underfunded. Mercer put the funded ratio for S&P 1500 companies’ plans at 82% at the end of March, up from 74% at the end of last year.
The recent news that a U.S. District Court judge awarded class-action status to a lawsuit challenging Verizon’s purchase of annuities to cover 41,000 of its retirees isn’t expected to discourage other employers from undertaking such transactions.