Planets aligning for U.S. pension funds to offload their liability risk
U.S. corporate pension plans have reached a sweet spot in their derisking journeys that will enable them to pull the trigger on pension risk transfer transactions, including plan terminations.
Their funding levels have risen primarily due to rising interest rates that are lowering pension liabilities even as plan assets have fallen due to the challenging return environment that has characterized the first half of 2022.
“For corporate pension plans, this what they’ve been waiting for, for years,” said Michael Moran, New York-based senior pension strategist at Goldman Sachs Asset Management, in a phone interview. The closer a plan is to being fully funded, the more cost-efficient a buyout transaction is because premiums are dependent on the ratio of assets to liabilities.
During the second quarter, the Moody’s Aa corporate bond yield, which is often referenced as a proxy for pension discount rates, increased 95 basis points to 4.49% as of June 30. As a result, the value of aggregate pension liabilities among S&P 500 companies with defined benefit plans fell about 11.1% during that quarter alone, according to estimates from Goldman Sachs Asset Management.
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