30% of US plans analyzed by fintech company RiskFirst have assets equal to or exceeding 95% of their liabilities on an accounting basis, according to RiskFirst data. Analysis of some 500 plans with assets of over $100bn highlights that the number of plans within this funding level band – which arguably puts them within reach of a buyout or termination (given the premium required to match current annuity pricing, offset by the increasing costs of plan management) – has increased by 50% in the first half of 2018.
Further analysis of the portfolio reveals that this figure increases to 40% in the event of a further 50bps increase in long-term yields, and to a staggering 46% with only a 75bps increase in yields.
Michael Carse, DB Pensions Product Manager, RiskFirst, says “The pension plans modelled on our platform – which range in size from smaller plans to those with $8bn in assets – are relatively typical of US plans as a whole, so these findings can be regarded as being fairly representative of the market. 30% is certainly a sizeable number, and while risk transfer will, of course, only be the right option for some of those plans within striking distance, it wouldn’t take much of a change in sentiment to impact the appetite for bulk annuities in the current climate.”
With market factors presenting particularly favorable conditions to de-risk – including accounting reforms, a strong performance in equity markets combined with reductions in liabilities, increased PBGC premiums, and the incentive for additional pre-funding in 2018 ahead of upcoming corporation tax changes – there is the potential for risk transfer rates to rise considerably.
Matthew Seymour, CEO, RiskFirst, adds: “For plans that are looking to transfer risk, those equipped with the tools to regularly and accurately monitor their funding levels and the broader market situation will be best positioned to capture the opportunities to de-risk as they arise.”