A primer on pension risk transfers

Pension risk transfers (or PRTs) have existed for decades. Ten to 15 years ago, lump sum windows were the most common type of settlement. More recently, the annuity transfer market has grown to become the dominant form of PRT. The topic of transferring pension risk may be well understood by those familiar with the concept. To the uninitiated, though, the reasons for undertaking a PRT and how to go about the process can be less clear. This paper seeks to explain at a high level the primary types of PRTs available to plan sponsors. 

As the name implies, a pension risk transfer is a project that moves pension risk from one party to another. More specifically, PRTs address pension funded status risk. This includes both market-related risks (such as interest rates) and demographic risks (such as mortality) that are inherent to pension liabilities. To address funded status risk, a PRT shifts a portion of both the assets and liabilities to another party. This transfer should result in the plan sponsor experiencing less funded status risk and lower administrative costs. Identifying the counterparty and the method of risk transfer is what defines the different types of PRTs available.

The act of paying lump sums or purchasing annuity contracts aren’t new concepts in the pension world. However, 2012 was a particularly notable year for risk transfers, as both Ford and Verizon completed large-scale PRTs. Since then, many other plans have followed suit, with the annuity transfer market growing significantly over the last decade. Recently, jumbo deals have represented a large portion of total liabilities transferred. Notably, AT&T’s $8 billion transaction in 2023 and IBM’s $6 billion transaction in 2024 garnered headlines. 

Beyond interest in de-risking, premiums payable annually to the Pension Benefit Guarantee Corporation (PBGC) are another key driver of PRT appetite among plan sponsors. PBGC premiums are annual fees for what’s essentially an insurance program. If a plan faces bankruptcy or insolvency, the PBGC will take over the failing plan and guarantee at least a portion of the prior benefits payable to the plan’s participants. Sharp increases in PBGC premiums over the last 15 years have made pension risk transfers more attractive.

The market has been growing steadily, but recent litigation may give some plan sponsors pause. In 2024, 12 lawsuits were initiated and are alleging a breach of fiduciary duty regarding the selection of the annuity provider involved in the PRT. While it’s too early to say how these cases will be resolved, we believe that carefully fulfilling fiduciary obligations is as important as ever when considering a PRT project.

This paper discusses the following:

• What is a prime risk transfer (PRT) and its applications
• PRT options: Lump sum window, Annuity purchase, Plan termination
• Eight other considerations when exploring PRTs
• Conclusion

Read the full paper

Read our paper to understand the basics of pension risk transfers and how PRT can be an effective tool in your DB plan toolbox.