Q&A: Leader of Nationwide Pension Risk Transfer talks trends shaping the industry in 2025

Cole: The marketplace had a phenomenal 2024, bringing in sales of $52 billion on 794 transactions – a 14% increase from 2023 sales and a 3% increase in the number of total buy-in and buy-out transactions year-over-year. Five separate multi-billion-dollar deals, which accounted for over $20 billion in total sales, largely drove growth in 2024, representing 40% of the industry’s total premium for the year. Market conditions remained favorable even amidst several interest rate cuts from the Federal Reserve, allowing funded status gains that increased during the high-rate market to be locked in and hedged against interest rate risk.

Cole: While the industry exceeded prior year sales and transaction results in 2024, we don’t expect 2025 to bring the same year-over-year growth for a number of reasons. Advisors should watch for the following trends in the marketplace this year:

• Plan terminations: Increases in plan terminations began in earnest last year and we expect this trend to continue in 2025. Rather than conducting lift-outs of certain groups within a pension, plan sponsors are looking to completely offload their pension obligations through terminations, which generally represent smaller deals. We believe this is the result of smaller plans achieving full funding due to the prolonged higher interest rate environment and strong market returns. Since plan termination paperwork can take 18-24 months to complete, we expect to continue to see these transactions finalized throughout 2025.   
   
• Funded status: For the first time since before the 2008 financial crisis, pension plans sponsored by large U.S. companies ended 2024 fully funded. According to data from Willis Towers Watson, which examined 361 Fortune 1000 companies that sponsor defined benefit pension plans, the aggregate pension funded status of these plans at the end of the year was estimated to be at 100%. This is a major shift from the struggles some plan sponsors experienced over the last several years. As a result, many may want to wait to make any de-risking moves, particularly as they watch how pending litigation plays out across the industry.
   
• Pending lawsuits: Lawsuits against multiple U.S. companies (and independent fiduciaries involved in the transactions) regarding pension risk transfers to private equity insurers piled up in 2024 and rolled over into 2025. While we believe the success and security of PRTs under the Department of Labor’s (DOL) guidance is serving American savers well, we do anticipate some plan sponsors may wait and see what happens in the courts before considering de-risking. This means we may experience a slower first half of the year than we saw in 2024. With a third or more of total premium traditionally coming from jumbo deals, a slow-down here would result in a marked decline in 2025 sales.

Cole: PRTs have become increasingly popular over the last decade as a tool to protect plan participants’ future pension payments. The number of financial services companies offering these transactions has more than doubled in the last 10 years with 21 carriers offering PRTs at the end of 2024. We expect this growth to continue in 2025, especially as companies continue specializing in different segments across the industry.

As the market has grown, providing a more competitive landscape for companies looking to offload their defined benefit plan liabilities, plan sponsors 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 repeat PRT transactions with us. We’ve been fortunate to work with various plan sponsors on back-to-back cases due to their selection of Nationwide as a preferred partner. 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 a poll from MetLife.

Cole: It’s important for plan sponsors to work with advisors who understand the complexities of the PRT market, helping them connect with insurers offering strength, stability, capacity and a proven risk management track record. At Nationwide, we’re focused on nimble growth, allowing us to successfully adapt to changing markets so we can navigate challenges, seize opportunities and remain a preferred carrier for any size deal. We’re doing this through a commitment to process excellence and continuous improvement, helping position our PRT model to be successful in any market condition.

We also encourage our team to collaborate and find ways to make the customer experience extraordinary, building on our decades of experience in PRT operational excellence. For example, Nationwide prioritizes offering seamless experiences through technology enablement, best-in-class self-service capabilities and timely transaction executions. Offering these services sets Nationwide apart from its competitors, ensuring that plan participants have a seamless transition to Nationwide and feel cared for throughout the life of their annuity.