The BCG Pension Insider

Ethan Bronsnick, Managing Director, Head of US Pension Risk Transfer at Corebridge Financial discusses where Corebridge focuses its PRT efforts, what PRT developments surprise him the most, as well as his view on what makes PRT attractive in the current environment. Ethan also provides his perspective on why buy-ins are increasingly being used by plan sponsors on their path to eventual plan termination.

When the tide goes out it becomes more dangerous to navigate a harbor as rocks and shoals are nearer a ship’s hull and threaten destruction. The financial market corollary is central banks draining liquidity and exposing financial institutions to potential demise. Monetary authorities are now in a tightening mode across the world. Institutions that do not have well designed asset-liability hedging strategies are in peril. Historic examples of flawed strategies include: the 2008 financial crisis, the 1998 Long Term Capital Management crisis, and the banking and savings and loan crises of the 1980s and 1990s. This paper describes UK pension plans use of leverage and how they became an early casualty in the current round of global monetary tightening. We also highlight key differences between UK and US pension markets and why it is critical during this period of Fed tightening/market volatility for plan sponsors and their advisors to continually be on the watch for attractive annuity pricing opportunities.

Glenn O’Brien, U.S. Market Leader, Head of Risk Transfer & Guarantee Products Distribution at Prudential provides his perspective on the current state of the U.S. PRT market, including latest trends, the balancing act of pricing and fiduciary considerations, pitfalls to avoid, and key considerations for plan sponsors and fiduciaries as the PRT market is now in its second decade of transformational growth.

The trend of increased pension de-risking has been clear over the last decade. 2021 was a record year in the annuity market, with over $38 billion of buyouts and buy-ins recorded. While continued busy years in the annuity market certainly lie ahead, there are technical impediments that some plans will face that will prevent them from taking de-risking action(s) while the iron is hot. Identifying and addressing these hurdles may allow for plan sponsors to optimally de-risk sooner rather than later, taking advantage of the attractive annuity pricing that so many other pension plans have benefited from in recent years. This paper identifies accounting considerations that may prevent pension plan sponsors from de-risking, and discusses steps to begin addressing these barriers.

A BCG special feature article in collaboration with BofA Global Research.

Defined benefit pension funds have always been an important source of demand for the bond markets (i.e., Treasury and Investment Grade Credit markets). With recent increases in Treasury rates and widening of investment grade corporate spreads, many DB plans are now at or near being fully funded. With the risk of recession on the horizon, and simultaneously falling Treasury rates, the time for plan sponsor action is now. In this article BCG in collaboration with BofA Global Research attempt to quantify what expected de-risking will mean for demand for Treasury and Investment Grade Credit bonds from both long duration/LDI and PRT strategies.

In the years after the financial crisis of 2008, defined benefit pension plan risks have become a top priority for U.S. corporate pension plan sponsors. Following the financial crisis, plan sponsors diligently worked to reduce balance sheet exposure to pension liabilities through a variety of pension de-risking strategies, including plan redesign (e.g., plan closures or freezes), in-plan strategies such as liability driven investing, and pension risk transfer (“PRT”) strategies such as lump sum offerings and annuity buyouts.

Why is it that some defined benefit annuity placements will have only one or two pension risk transfer (PRT) insurers bidding on a particular opportunity, while others may have half a dozen or more? One critical factor is the size of the annuity purchase. This paper explores the factors, beyond just the size of the purchase, that will determine number of bidders.

David Levine, Co-Chair, Plan Sponsor Group at Groom Law Group shared how plan terminations have evolved over the years and why proactive attention to wind down strategies for a plan’s alternative investments can often be beneficial.

The first quarter of 2022 has seen a steep rise in interest rates. This increase in rates is across the board, with increases in short durations as well as long durations, treasuries as well as corporate bonds. While rising interest rates (aka discount rates) generally lead to lower defined benefit pension liabilities, the specific impact on pension liabilities is not necessarily that straightforward.

Richard McEvoy, Senior Vice President and Pension Group Annuity Leader at Athene shared his thoughts on prevalent tailwinds for Pension Risk Transfer and how the market has adapted in recent years to accommodate larger transactions.