A new survey with 80 senior finance executives at companies with traditional pensions reveals that those who shifted pension risk to insurers had three top concerns regarding costs and volatility.
Behind group annuity purchases, the survey shows that persistent asset related volatility, sharply rising premiums to the Pension Benefit Guaranty Corp (PBGC), and growing life expectancies of beneficiaries were the main issues regarding the transfer of pension liabilities to insurers. The survey was conducted by CFO Research in cooperation with Prudential Financial Inc.
Broad satisfaction with the outcomes were reported by executives that already transferred pensions risk, with 72% revealing they are likely to transfer additional liabilities in the future.
Of the respondents, 83% were “completely satisfied with all aspects” of their group annuity purchase. A reported 81% agreed that their beneficiaries enjoy receiving their pensions from an insurer, while 86% felt this sort of agreement helps their company keep their promises to employees and retirees alike.
In the case of those who have yet to transfer pension liabilities, 21% said that they plan to purchase a group annuity within the next two years.
Recent increases in the PBGC premiums were the reason 36% of senior executives say their companies are more likely to purchase a group annuity in the coming years. Changes in mortality assumption and the prospect of future changes called for 33% to consider pension risk transfers.
In addition, the study shows tax and regulatory proposals from the current administration and Congress could provide further motivation in considering a group annuity purchase. Of the respondents who have not completed this transition, 55% suggested a lower corporate tax rate in 2017 would “very likely” motivate their companies to increase pension plan funding in the next year, where 40% decided lower taxes would result in either a full or partial pension liability transfer.