Pension Financing Hot in February

Maybe much of the country was encased in snow, ice and a deep freeze this February—but the environment for pension plans was red hot, recent reports reveal. 

“Pension finance enjoyed its best month in more than three years in February,” said actuarial firm October Three in its February 2021 Pension Finance Update. And consulting firm NEPC joins October Three in reporting that pension plan funding improved in February. 

Both firms track hypothetical defined benefit plans; NEPC a total return plan and liability-driven investment (LDI) plan, and October Three one that is invested in a conservative manner, and another that is invested in a more traditional way. 

Both firms reported similar pension funding results in February. October Three’s traditional DB plan improved by 5%, and the conservatively invested plan by 1%; the funded status of NEPC’s total-return plan rose 5.2%, and that of its LDI-focused plan improved by 1.9%. 

NEPC also reports improvement from January to February:

The explanation for the positive results lies in stock market performance and interest rates, the firms said. Further, they note that liabilities fell in February; October Three says they fell 3%-5%, and NEPC reports that falling liabilities were among the reasons why the status of the total-return plan improved as much as it did, and “shrinking liability values” were also a reason for the improvement in the LDI-focused plan. 

Pension Buy-Outs

Meanwhile, the Secure Retirement Institute reports that U.S. single premium pension buy-out sales in the fourth quarter of 2020 were sharply higher than those of the same period the year before, says a new report based on the responses of 19 companies that represent 100% of the U.S. pension risk transfer market.

More specifically, those sales were 21% higher than during the fourth quarter of 2019, says the Secure Retirement Institute in its U.S. Group Annuity Risk Transfer Sales Survey. During the fourth quarter, 177 new buy-out contracts were sold, covering almost 260,000 participants. 

But despite the fourth quarter results, the Secure Retirement Institute also reports that in 2020, buy-out sales amounted to $25 billion, down 10% from 2019. They attribute that result to sluggish sales in the second and third quarters.