Pension De-Risking Market Booming Alongside Wave of Lawsuits

Insurers absorbing large corporate pensions posted a record-breaking third quarter, topping more than $14 billion, according to new industry data, signaling another big year in 2025 for pension risk transfers.

New legal threats the industry faces could roll over into the new year, however, as regulators consider retrofitting the conditions plans have to meet before they shed risk and private-sector plaintiffs launch a new wave of lawsuits targeting risk transfers. Pension risk transfers, or PRTs, offer companies a way to shed the liability of sponsoring a stock market-dependent benefit plan to an insurance company.

Nearly half of third-quarter pension risk transfer volume was made up in a single IBM transfer of more than $6 billion worth of defined-benefit plan liabilities to Prudential Insurance Co. of America, according to data by UK-based asset manager Legal & General Group PLC.

More movement is anticipated, as Eastman Kodak Co. told investors late last month it was considering a freeze and transfer of pension assets, according to a federal filing. A transaction of that size could set in motion another major year for PRTs. Large transactions still make up the bulk of de-risking volume, and market conditions are primed for another bullish year, especially as life insurers already in the business of managing longevity risks look for more opportunities to diversify asset classes.

“As the market has evolved, we’ve seen volumes continue to rise and more transactions being announced publicly, which is helping to broaden knowledge and understanding of PRT as a key risk-mitigation strategy for US insurers,” said Sheena McEwen, vice president head of distribution for Legal & General Retirement America.

Large corporations that still offer their workers traditional pensions sometimes opt to offload part or all of their market risks to a life insurance company. Since the post-pandemic economic rebound, corporate plan sponsors have found themselves uncharacteristically well-funded but still strapped with retirees living longer than expected—the prime conditions for a plan de-risking contract buyers’ market.

The average corporate pension funding status remained near an all-time high of 110% at the end of September, according to LGRA’s third-quarter monitor.

“This is only going to continue,” said Brendan Maher, a tenured professor at the Texas A&M University School of Law. “When a company carries a pension obligation, there’s a significant burden associated with that. If a company can offload that obligation, they’ve literally lightened their load.”

Safest Available Annuity

AT&T Inc., General Electric Co., and Lockheed Martin Corp. are among several major employers who have faced federal class-action lawsuits this year claiming the Athene Holding Ltd. products they offered workers and retirees aren’t the “safest available annuity.” That’s the prime factor of consideration the US Labor Department wants pensions to consider when they’re eyeing a pension risk transfer.

The company, which was gobbled up by private-equity firm Apollo in 2021, has emerged a key example of the “new” kind of life insurer that prompted the DOL to begin considering whether it needs to update its warning. The company ended 2023 at the top of group annuity sales with $10.4 billion in total volume, according to LIMRA.

The complaints against the company allege that, since its inception, Athene has completed 45 PRT transactions totaling $50.5 billion and covering over 550,000 plan participants.

DOL’s Employee Benefits Security Administration sent a long-overdue report on pension risk transfers to lawmakers in June.

Private equity firms had a stake in a little under 7% of the US insurance industry in 2020, according to the National Association of Insurance Commissioners.

Independent players such as MetLife Inc. still dominate the pension risk transfer space, but Apollo-backed Athene now controls individual annuities, and Blackstone Group LP has staked claims in American International Group Inc.‘s former retirement business line as well as Fidelity and Guaranty Life Insurance Co.

“What we see with the pension funds is that, sure, the funds are doing great, however, if you add the net of what the private equity firm takes out and the net of the management fees, you’re not doing any better than if you had just been in an index fund in the stock market,” said Eileen Appelbaum, co-director at the Center for Economic and Policy Research.