Most plan sponsors not expecting delays in future pension buy out activity due to Covid-19, MetLife poll finds

Just 19 per cent of plan sponsors interested in an annuity buyout with a specific timeframe in mind reported that the pandemic has decreased or delayed the likelihood of transacting, according to MetLife’s 2020 Pension Risk Transfer Polly. 

A vast majority (81 per cent) said there had either been no change in plans due to Covid-19 (27 per cent), or that the pandemic has actually increased or accelerated the likelihood they would transact (55 per cent).

“Despite a slowdown at the beginning of 2020 due to Covid-19, we have seen the pension risk transfer (PRT) pipeline build momentum in the third and fourth quarters,” says Melissa Moore, senior vice president and head of US Pensions at MetLife. “This is consistent with the Poll findings, which show plan sponsors do not expect buyout activity to be delayed by either the pandemic or a protracted economic recovery.”

In fact, the Poll found that the primary catalysts driving interest in PRT transactions include market volatility (51 per cent) and mortality changes due to Covid (36 per cent). The Poll also found that plan sponsors are looking to transact sooner rather than later—among defined benefit (DB) plan sponsors interested in a buyout, the majority (81 per cent) say they would transact within five years, including 24 per cent who said they would secure a buyout within two years.

While buyout activity is resuming, the pandemic has had an impact on how plan sponsors manage their DB plans. Forty percent of plan sponsors report they have borrowed money to fund pension deficits, and 35 per cent restricted benefit payment options (eg, lump sums) because of the impact on funded status. About one in five (22 per cent) decreased or called back planned contributions, 15 per cent triggered a partial plan termination due to layoffs, and 6 per cent have frozen or closed their plans.

“The Poll also shows that in the current environment plan sponsors appear to be most concerned about maintaining and funding their DB plans to meet their required benefit obligations,” says Moore. “The volatile market environment is also a concern—plan sponsors said they were focused on the performance of their plan investments, including minimising asset volatility and the impact of the low interest rate environment.”

In addition to looking at how they manage their plans, DB plan sponsors have also taken advantage of the relief measures available through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Nearly nine in ten plan sponsors (89 per cent) say they have taken, or will take, advantage of the CARES Act provision that extends the deadline to make DB plan contributions until 1 January, 2021; only 10 per cent say that is not part of their plans and 2 per cent are unsure.