Q&A: Leader of Nationwide Pension Risk Transfer talks 2024 results, 2025 expectations

Cole: The marketplace had a phenomenal third quarter, bringing in $14.2 billion in third quarter sales, as well as year-to-date sales of $39.9 billion on 539 transactions – a 36% increase from Q3 2023 sales, a 21% increase in year-to-date sales and a 10% increase in the number of total transactions year-over-year. Growth through the third quarter has been largely driven by five separate multi-billion dollar deals which accounted for over $20 billion in total sales, representing half the industry’s total premium so far this year. Even with the recent interest rate cuts from the Federal Reserve, market conditions remain favorable for PRTs, allowing funded status gains that increased during the high-rate market to be locked in and hedged against interest rate risk. A recent PRT poll from MetLife found more than half of companies with defined benefit pension plans expect to divest within two to five years, continuing to seek opportunities that bring the strength and stability of the insurance industry to their employees and retirees, fueling demand for PRTs well into the future.

Cole: Fourth quarter sales in the PRT industry are typically elevated as plan sponsors push to process transactions before the end of the year. We expect this to occur in 2024 as well, pushing total year-to-date sales over $50 billion and exceeding 2023 sales.

We also anticipate this industry momentum to continue in 2025, especially as plan sponsors continue to ready themselves for de-risking well into the future. As the market has grown, providing a more competitive landscape for plan sponsors looking to offload their defined benefit plan liabilities, they have become more confident in PRT providers, becoming repeat customers with companies who deliver exceptional experiences through pricing, reputation, security and customer service. For example, at Nationwide, we’ve seen an increase in the number of plan sponsors completing year-over-year PRT transactions with us. In fact, we’ve worked with one plan sponsor on back-to-back cases every year for five years. This is another trend reinforcing the growth trajectory of the PRT industry, especially as 93% of companies with de-risking goals plan to completely divest their plan liabilities, according to MetLife’s poll.

Cole: The industry faced a multitude of headwinds this year, from market volatility, to lowering interest rates and the presidential election. However, the strength of the marketplace and the confidence plan sponsors have in PRT transactions helped push the industry to record-setting results even amidst these headwinds.  

One of the larger headwinds faced in 2024 was the Department of Labor’s (DOL) review of Interpretive Bulletin 95-1, which provides guidance to plan fiduciaries on the responsibilities of pension plan sponsors when selecting annuity providers for a PRT. The lead up to this review was filled with skepticism and noise that PRTs are risky and not always in the best interest of plan participants. However, the DOL chose not to make any recommendations regarding changes to the bulletin at this time. We expect this issue to continue to remain prevalent in conversations about the industry in 2025 amidst the backdrop of several lawsuits challenging the safety and security of PRTs. However, we believe the success and security of PRTs since the DOL issued 95-1 is commendable. In fact, it’s one of the things we pride ourselves on here at Nationwide – our excellent customer service, strength and stability make us a smart choice for plan sponsors looking to transfer pensions.

Cole: During a pension risk transfer, the transition experience is critically important to the success of the overall risk transfer. To ensure a successful transition, plan sponsors need to collaborate with a variety of players and develop a solid game plan. Here at Nationwide, we’ve developed a six-step playbook using lean principles that lay out the best ways to navigate PRT transactions. Many of these steps occur simultaneously, but all steps are important and part of the process:

1. Assemble a Winning Team: Align with annuity placement specialists, legal counsel, actuaries, recordkeepers and plan administrators, ensuring each player participates to help reduce financial and operational risks.

2. Choose a Strategy: Each PRT is unique and requires individualization, like lump-sum windows, retiree lift-outs, annuity buy-ins or full plan terminations. Several factors influence PRT strategy, including participant demographics, the plan’s level of funding and benefit formula.

3. Analyze and Adjust: While the strategy is being determined, the annuity placement specialist, recordkeeper, actuary and the plan sponsor’s finance department need to analyze the current plan’s assets and liabilities. Does the plan sponsor have enough funds and cash flow to finance the preferred PRT strategy? Does the defined benefit plan itself have adequate funds to support the strategy? What impact will a PRT have on the plan sponsor’s long-term financial liabilities and remaining defined benefit plan’s funded status?

4. Gather Data: Data is important for insurers who respond to request for proposals for a group annuity because they need the most accurate and robust plan participant data available to accurately price their product. Data includes information about participants (age, address, form of payment) as well as information about designated beneficiaries and survivor benefits.

5. Choose an Annuity Provider: All PRT strategies, aside from lump-sum windows, will include issuing a request for proposal to insurers to find the best group annuity contract. Through their annuity placement specialist, plan sponsors should look for carriers that are strong, stable and have available capacity to accept the proposed group annuity contract. They should also seek out providers who have high customer satisfaction, homing in on companies that offer continued due diligence in customer servicing. 

6. Communicate: Internal communication among the various team members needs to occur in a timely and concise manner. Communication to plan participants is equally important because it will help provide peace of mind.