The market for pension risk transfers is booming.

In the first quarter of 2022, U.S. pension risk transfers reached $5.5 billion in total market volume, marking its largest quarter to date, according to Legal & General Retirement America’s pension risk transfer monitor. A PRT deal happens when a retirement provider — usually a corporate pension plan sponsor — unloads a portion of (or all) of its liabilities to an insurance company.

Beth Ashmore, managing director of retirement at Willis Towers Watson, told Institutional Investor that pension plans want to enter pension risk transfer deals from a strongly funded position. “To do a pension risk transfer you [have] to make sure you have sufficient assets to hand to the insurer in order to secure those benefits,” Ashmore said. “With a strong funded position, sponsors are saying… this is an opportunity for us to manage our risks and capitalize on being funded.”

Ashmore said pension plans’ funded positions have improved recently as a result of strong equity market performance. According to WTW’s Pension 100 report released last week, the aggregate funded status of defined benefit plans in the index rose from 87.9 percent in 2020 to 95.8 percent in 2021.

Rising interest rates have also contributed to improved funding positions because as interest rates go up, the value of pension liabilities that companies have to hold on their balance sheet goes down.

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