On May 13, 2025 industry leaders came together to discuss strategies for navigating today’s pension risk transfer (PRT) landscape. Together, they shared insights on current regulatory frameworks, the role of data integrity in successful transactions, and market opportunities to achieve long-term pension security.
Webinar panelists included:
- Travis Jones, Senior Consultant of PRT, Aon
- Glenn O’Brien, Head of Risk Transfer, Prudential
- Ken Cotrone, Insurance Certified Supervising Examiner, Connecticut Insurance Department
- Lane Kent, General Manager of Insurance, Berwyn
Webinar Transcript
Lane Kent
Welcome to Berwyn University! My name is Lane Kent. I’m the General Manager for our insurance practice here at The Berwyn Group, and it is my great pleasure to be hosting this event today with this All-Star panel to discuss pension risk transfers, market stability, regulation and future outlook. And just a note about the comments being made during this discussion or the views of the panelists do not necessarily reflect the views of anyone else of any organization or companies participating. I would now like to give my esteemed guests an opportunity to introduce themselves. We are joined by Travis Jones of Aon, Glenn O’Brien of Prudential, Ken Cotrone from the State of Connecticut Department of Insurance, and as I mentioned, my name is Lane Kent. So, from left to right, Travis, if you would please give an introduction.
Travis Jones
As Lane said, my name is Travis Jones. I’m an Associate Partner here at Aon, which is a global consulting firm specializing in risk and human capital solutions. I’ve been with the firm personally for about 13 years and have spent maybe the last decade or so out in the market as a deal advisor for pension risk transfer transactions. Over that last decade, I’ve worked on deals as small as $1,000,000 and as large as $7 billion plus. So, I’m excited to share some firsthand experience with the group today.
Lane Kent
Thank you, Travis. Glenn.
Glenn O’Brien
Thank you. Good afternoon, everybody. Glenn O’Brien at Prudential. I’m going on 22 years here at Prudential and I’m responsible for our pension risk transfer transactions, our structuring efforts, our client management function, our new business activity here at Prudential. I started off working for a small actuarial consulting firm many, many years ago. They’ve been really focused at Prudential for the better part of 15 years on the developing and incubating the pension risk transfer market and we’ll talk a lot more about volumes and those kinds of things today. So, thanks everybody for joining.
Lane Kent
Thank you, Glenn.
Ken Cotrone
My name is Ken Cotrone. I’m a Financial Analysis Manager with the Connecticut Insurance Department. I’ve been with the department for about 13 years. My role is to oversee the life, health, property and casualty industry and the solvency of our domestic insurers. I also represent Commissioner Mayes on various NAIC task force and working groups and I’m happy to be here and participate in this conversation.
Lane Kent
Thank you, Ken, and thank you all for those introductions. As I mentioned earlier, my name is Lane Kent and I’m responsible for the insurance practice here at The Berwyn Group. I spent my career in life insurance, annuity, and supplemental health mostly focused on long term care in general, supplemental accident insurance. I joined the organization about two months ago and I’m really thrilled to be here with you today to talk about this really important topic. We’ve got a lot to cover. So, we’re just going to dive right in the first few minutes here. For our first discussion, I’ll direct some questions to Glenn and to Travis. What is the current state of the PRT market in 2025 and where is it heading? Glenn, why don’t you go first, if you don’t mind?
Glenn O’Brien
Sure. I think you know we’re coming off a pretty robust 2024, a little bit more than $50 billion worth of transactions. In 2024, I think most people that have observed the market realized there’s a segmentation to the market, a few really large transactions can skew those. You know, dramatically higher, but I think we continue to observe, you know growth of the market. I think from a number of transactions and the number of sponsors entering the market to derisk and say that’s one we continue to observe more insurers coming to the market servicing, I would say different. Segments of the market, whether it’s small, medium, large, whether it’s retirees or planned terminations or both. So, we see different segmentation of insurer participation. And I would say that, you know, taking a look at the 2025 pretty robust pipeline of transactions, we see more terminations. I would say that the growth of the market is clearly in the small mid-market termination spot. And then you know, early indications of probably maybe a flat year from an overall dollar perspective, but given the nature of the fact that these plans are frozen, still ambitious about we what we think 2026 and 2027 will look like from an overall transaction volume perspective. So, I would say that you know a pretty good year here so far. Some upsides I think to come out you know with the balance of the year, but continued growth given the healthy fund status and plans in general. Travis, anything you can add?
Travis Jones
No, I agree with everything that Glenn laid out there and maybe just pile out a couple more points here. The market really has continued its momentum in the first quarter of ‘25. We’re looking at probably in excess of $7 billion in sales. And so, when you compare that to the first quarter of ‘24, which had over $14 billion in sales, you might think, OK, the markets slowing down a little bit, but in ‘24, especially as in most years, the total driver of premium in any given year is the jumbo transactions that are in the market and the first quarter of last year saw two transactions that accounted for over $10 billion of premium, whereas the first quarter of ‘25 is seeing only one transaction. Over a billion dollars in premiums, so really the market is continuing to hum along pretty nicely. As Glenn said, really being driven by planned terminations that kicked off at the tail end of ‘24 and they’re now completing their their process in ‘25. In terms of the overall year, I think a lot of it’s going to depend on whether or not some of those jumbo transactions materialize. Right now, there’s some PRT litigation hanging out there over the market that’s causing some plan sponsors, especially at the jumbo end of the space, to hit pause and just kind of wait and see how those shake out. But you know from the insurer side of things, we continue to see growing interest as well. We’ve already got one new entrant that’s bidding in ‘25 and in fact has already won a couple of transactions. So early in their PRT careers, finding some, some success. So, their entrance brings the total number of PRT insures up to 22, which is 10 plus more than what we started with when I entered the PRT market and I think you know probably in the next couple of years we could see that number be as high as 25. So, I think momentum is the keyword there and it’s continuing on.
Lane Kent
Terrific. Thank you both. Just to build on that a little bit, the risk transfer and the stabilization benefits to the plan sponsors and funds seem pretty straightforward. What makes this attractive from an insurer’s perspective and why is it drawing additional players? Maybe Glenn, you could start with that question if you don’t mind.
Glenn O’Brien
Sure. So, I think that just the nature of a of a legacy defined benefit plan fits well on the balance sheet of a life company, so there is obviously a mortality longevity net. That makes life insurance companies particularly efficient at holding these kinds of risks compared to, you know, the average sponsor. That might be a manufacturer or something where they’re not, you know, possibly hedged against longevity gains that are embedded in pension plans. So, first it’s a really helpful offset. Against our mortality risk. Second, it really leverages our ability to put money to work in the various components of the capital markets where we have really deep and long-term expertise. So, I would say it leverages just a lot of those capabilities that we’ve built over 100 years. Thirdly, I think it’s helping our clients. Say it was reinvent some of their businesses, so this is taking liabilities on the balance sheet. To the greatest degree, I think something like 80% of the plans are frozen. So, if you’re really running a runoff insurance entity called a pension fund on your balance sheet, it really allows itself to transfer efficiently. We can do it on an efficient basis. I would say go back a dozen years ago now to what I’ll call the modern day pension risk transfer market post, General Motors and Verizon transactions, I think that’s probably one of the biggest learnings is that the insurance community can be efficient at these transactions. It allows us to put money to work and scale and that it’s helpful. Balance to our mortality position as a life insurance company.
Lane Kent
That’s terrific. And Travis, you worked with a lot of insurers. What are you hearing as in terms of motivating factors for getting into this market? What is of interest?
Travis Jones
Yeah, I think it’s a lot of what Glenn already laid out there. You know, the insurers find these long term pretty stable liabilities that don’t have a big risk for a run on the bank or a liquidity crisis to be pretty attractive. And you know as Glenn said, they’re a nice hedge for the life insurance risks that they’re already taking. So, from their perspective, it fits nicely into their book of business and, like I said, from planned sponsor, effective. Many are not in the business of running, as Glenn said a run off life insurance company, so might as well hand things over to the experts.
Lane Kent
Yeah, that makes sense. I’ll stay with you, Travis, and just build on that a little bit getting into some of the mechanics. How does participant data quality influence pricing and risk assessment and or the onboarding post transit?
Travis Jones
Yeah, I really like this question because data does touch really all aspects of a pension risk transfer transaction. So, when we send the RFP out to the market and ask the insurance companies if they’re interested in bidding and that’s really kind of the risk assessment from their side of is this a risk that we have tolerance for, do we want to participate on this transaction, and even though they don’t get PII at the bidding stage, there’s still going to be some indicators in there that will give an insurance company insight into the overall data quality. Or if there’s maybe some holes that are there. There are insurers in this market that will say, hey, you know, based on the review that we had of the data, we don’t think it’s a very good quality and this is something that we’re not interested in spending our finite resources on. So poor data quality, can get the process off to a bad start by limiting insurer engagement from a pricing perspective. And we have heard from our conversations with insurance companies that bad data is more expensive to price than good data. We have seen significant loads applied to missing participant populations or population where there’s a significant amount of folks that have not started their benefits yet that are over age 65 could be you know 10% or more. And so those data quality issues certainly find their way into pricing. And then lastly, from an onboarding perspective, you know the insurance company needs the full suite of information for not only the participants, but also the contingent annuitants and that can be a lot more information than necessarily is required for say, an actuarial evaluation. And so even though they don’t get that during the pricing process, as the onboarding process can be derailed if we find out that there are a significant portion of participants that we don’t have full name in, SSN, or maybe we’re missing the full name in SSN for the contingent in new attempt. So, it’s never fun to go through a process and think that you know you’ve secured a great deal and you’re going to settle all this obligation only to find out that the insurance company is unwilling to accept some of those liabilities because the data elements that they need to be able to administer the data just are not available.
Lane Kent
That’s fantastic. Glenn, is there anything you’d like to add to that question?
Glenn O’Brien
I think Travis captured the insurance industry in this particular segment of the market, we are about big data. So, we have a lot of tools that allow us to assess whether the data makes sense in general. That’s number one. Number two to Travis’s point, the more speculation that an insurance company has to make on any product, whether it’s PRT or anything else, the more expensive is the outcome. And I would say over my career, the PRT market is going to be the highest standard for data quality that a pension plan will live through. So actuarial evaluation data can have certain plug factors that will get you to a very close assessment of your liability, but not necessarily exact. It’s just always helpful to remind people that a pension risk transfer transaction once the transaction is closed, annuity certificates are sent out, assets have transferred from an ERISA trust to an insurance company, that transaction is irrevocable. So, once we own it, we own it. Forever. We cannot give it back to somebody, so it’ll be the highest data standard that a pension plan lives through, frankly.
Lane Kent
That’s great. I’d like to bring Kevin to the conversation now. Ken, from a regulatory standpoint, what are the key compliance considerations for plan sponsors and for insurance companies before and after the transaction?
Ken Cotrone
So, we typically require advanced notification from our insurers that they’ll be entering into one of these transactions and then we have several areas that we’ll have questions on or look into further one of them echoing what Travis and Glenn said was the data integrity and the due diligence the insurer did to verify the data to the best of their ability in order to properly price the transaction as well. You know we don’t want bad data and then on inappropriately priced transaction. We also look to make sure that you know what some key compliance considerations are. You know ERISA compliance, the plan fiduciary, they must act prudently and solely in the interests of the participant and we also look at the insurer and their expertise in managing these types of these assets and these types of transactions. We’ll also bring in our actuarial division to do an actuarial review of the transaction as well for any feedback that they can give us.
Lane Kent
Terrific. What have you come to appreciate as best practices in these transactions from the perspective of the insurers that you regulate?
Ken Cotrone
So, your forthcoming is from the insurers being active, proactive coming to the department and it’s one of the biggest things I would say is proper due diligence that shows us the due diligence they did to verify the data. Because the data plays such a key role.
Lane Kent
Building on that theme a little bit, thank you very much, Ken. I’ll go back to you, Travis. What are data issues that most commonly create friction during the transaction process?
Travis Jones
I would put the data issues into two different buckets. The first I would call incomplete data and so that goes back to some of what Glenn and I were talking about where this is the highest data standards that your pension plan data is ever going to need to clear. And so insurers are going to need the full name and Social Security Number – as well as a good address for all of the participants and beneficiaries that are in the plan so that they can administer benefits. But they’re also going to need all of the information that’s necessary to value those benefits and administer things on a go-forward basis. So, date of birth, gender, the benefit amount, the form of annuity that somebody is receiving, those are all critical pieces of information that have to be had. And I can tell you from experience, there’s a lot of plan sponsors that are running out there that had paper files that are no longer accessible or something like that took place where they’re just kind of guessing on some of these data elements and that’s really not good enough for the pension risk transfer transactions. So those types of issues can cause problems for both onboarding and pricing. The other bucket that I would say is really just missing participants. So, this could be somebody that we have a bad address for and we’ve done some searches and they still won’t respond to us. My favorite example, we’ve got a participant that we know passed away 10 or 15 years ago and we don’t know if they had a spouse or not. So, we continue to hold them on the valuation data because there’s a question mark, but now, we’ve come time to settle these obligations and we need an answer. Those are participants that an insurance company more times than not is not going to be interested in taking on because the same headaches that the pension plan has had to deal with trying to get answers to those questions would become the insurance responsibilities and they really don’t have within their regulatory framework. The ability to kind of throw up their hands and say we don’t know. And soc those are some items that if not properly addressed up front, can certainly derail a PRT transaction.
Lane Kent
Terrific. Glenn, what are some factors that you’ve seen in your experience that contribute to planned sponsors starting this evaluation and wanting to go through the process.
Glenn O’Brien
It’s a good question, right? You know, I said a long time ago, it’s actually somebody else quoted this. So, this is not originally by me. When you meet one pension plan, you’ve met one pension plan. So, each plan is pretty different and the motivations seem to vary quite a bit. I would say that there is a financial perspective where, if the plan is frozen regardless of how long it’s been frozen, it’s really not a core operation of the company. We should especially now with interest rates having moved so much. If it’s well enough funded, this is just really a downside risk to either the shareholders or other interested parties, so we should just move this. So, there’s a financial perspective. Around it, building on the financial perspective is if you think about the legacy of even just the Fortune 500 and the legacy of pension plans in general and the amount of rotation of companies in and out of the Fortune 500 over the past, you know 50 years has been drawn. As companies successes have ebbed and flowed over time. The pension plan can become a really large part of the balance sheet, so it’s those moments where if you have the opportunity to shed risk, we certainly see that perspective around it. You have obviously really well funded plans these days. On average, if you’re following the index 100 and well-funded plans obviously are a big motivating factor for people to seek for risk. For the amount of fees, whether it’s administration, asset management, actuarial, PBGC, right, there’s a lot of fees involved in running a plan even if it is frozen. So, there’s some expense considerations and just the amount of time and effort that it might divert other people’s tension away from. So, I would say that it runs everything from the financial rationale to the highest and best use of my team’s time and this can be efficient to move and get done and put in the rearview mirror. So, we see everything in between.
Lane Kent
That’s great. Travis, I’ll direct a question to you. Now that it’s quite the ecosystem that supports these transactions, what do plan sponsors do to align all the various stakeholders that they get involved with from consultants and through those that are performing any sort of data valid? And just aligning with the potential expectations of the insurers that they might engage through the process and what does that timeline look like? And I imagine there’s some variability there, but just generally speaking.
Travis Jones
It’s a great question and it’s really going to vary on a couple of different factors. So, first is going to be the cleanliness of the data. If you’ve got pretty clean data and everything is buttoned up, you don’t really need to do much clean up before you get things started, but if you’ve got a bunch of holes in the population, you’re going to need to do at a minimum some commercial searches. But maybe you also need to do some participant outreach that could push the prep timeline out to maybe three to six months, or maybe even longer, depending on the severity of the data remediation that needs to take place. The other thing is really the size of the overall transaction. If you’re looking at a small, maybe $10 to $20 million transaction, those are generally speaking going to move a little bit faster, don’t need to spend as much time engaging with the market to make sure that you know resources are available and that the timelines are aligned, but if you’re bringing a jumbo transaction to the market, think a billion dollars plus. That’s huge. Essentially M&A activity that’s taking place. And so, there’s a lot of correspondence and consultation that needs to take place with the insurance marketplace to make sure that they’re going to have capacity not only from a financial resources perspective, but also a people resources perspective. To take on a transaction of that size to be able to bid and work through the bidding process. So those larger transactions you know often will have a lead or a prep time of you know at least six months – could be as much as 9 to 12 months. So, it really is dependent on each transaction, as Glenn said, I really liked his quote there. You know you’ve met one pension plan and you’ve met one pension plan it really applies to PRT transactions as well. All of them are going to stand on their own and they’re all going to have their unique challenges that need to be addressed. And so that’s why it’s really important to make sure that you’re working with an experienced partner to help you engage with the insurance marketplace so they can think through all of those types of things on your behalf.
Lane Kent
Great. I’ll ask you all to comment on this next question, but I’ll start with you, Glenn. What do you find to be the most important step? If you could distill it down to one critical factor in the PRT process, what would be that one thing?
Glenn O’Brien
Oh, good question. I would say it’s the economic expectation because everything can flow from there. But if you have an estimate of what you think your cost might be to exit a particular set of liabilities or the entire plan and if you’re using accounting, you’re accounting liability as that proxy, making sure that your accounting liability is mark to market methodology than historically might have been within a pension plan. So, I would say having a healthy understanding of what the marketplace expectations are for the price of a of a particular transaction. And if if you can come and solve for the economic expectation of a transaction then all the other swim lanes around. You know, compliance issues, data communications, all those other things seem really achievable and solvable, but having misaligned financial expectations in the early part of a transaction never sort of ends very well. So, I think it’s that point.
Lane Kent
Ken, from your standpoint, what is a single factor that is so critical in in a successful transaction here of this type?
Ken Cotrone
I would go back to the data integrity. I think making sure that the insurer did its due diligence, it’s properly pricing the transaction because we’re protecting the solvency of the insurers is what the Connect Insurance Department primarily does, we regulate for solvency, so underpricing could have significant impact to the insurance company. So yeah, making sure that data is solid and that the pricing is in line with the quality of the data they are receiving.
Lane Kent
Great. Thank you. And, Travis, for you, what’s a single important factor?
Travis Jones
Yeah, I think for me it’s finding an experienced partner and experience broker to help you engage with the market because you’ve heard a lot of things today about data, about the accounting liabilities that you have. There are many factors that go into making sure that you have a successful PRT transaction. And so, a good partner can help you build the right population. That’s going to be the most attractive to the insurance company to get you the best pricing possible by going out and engaging with the insurance companies and negotiating on your behalf. We’re also going to be able to help you think through the evaluation. Of these insurance companies planned fiduciaries have a personal liability for the decisions that they are making when it comes to evaluating the insurance companies that are quoting on these pensioners transfer transactions and selecting the safest available annuity provider that they can. And we’ve seen some litigation out there to underscore those risks and so you want to make sure that the partner that you’ve got is going to be able to provide you with support in that regard as well. So just lots of different things, lots of different ways that these PRT transactions can get off track. An experienced partner will help you navigate all of those things. And I think Glenn can attest there are some brokers out there in the market that don’t know what they don’t know. And those transactions tend to not go as well and can be a bit of a turn off for the insurers as well. So, like I said, find yourself an experienced partner to help you through the process.
Glenn O’Brien
Yeah, just to add on to that I can make read more so implied in my comments, is that you’re working with somebody who understands the language of pensions that have done this before. You know if there’s the speculation that the advisor might not have their hands around the details of something related to a PRT transaction that’s going to be a transaction that we’re a lot less interested in participating in because it’s a robust market, it’s a busy market and no one wants to enter into and complete an irrevocable transaction, and then come to discover problems later, especially in a planned termination where the plan no longer exists. So having worked with various firms, they know what you know. They know this not just the marketplace. But they understand pensions really well. The data requirements, where to look and to be able to solve problems and ask questions. So, if we don’t have that confidence in a particular transaction, we’re a lot less likely to participate.
Lane Kent
That’s great. I want to turn a little bit now to looking ahead and in the current state, are there any considerations of the current political landscape that are going to have an impact on deal flow or just transactional quality or anything that you can think of that you would want to call to the attention of the people participating today? Glenn, I’m glad you want to start with that one.
Glenn O’Brien
Sure. I’m not sure if it’s the political landscape, but Travis mentioned earlier there’s litigation in the PRT market. It’s akin to a lot of the kinds of litigation that’s happened. I would say that from a regulatory perspective, we’re really barred from talking about the protections and the guarantees built into the insurance framework and the solvency framework of insurance companies. So, you know the independent, the fiduciaries involved in a PRT transaction have the requirement to make the choice of the insurer the counterparty, so that is clearly stated and staked out. I think about this a lot because if I had to go back and do things over again, I would have spent more time trying to help sponsors and educate the marketplace about. The strength and the quality and the protections of the insurance company framework in general. So, Ken would, I think, attest to this, we’re a heavily regulated industry and you know that’s easy to say. I think everybody’s a student of the fact that sometimes, regulations don’t catch every sort of nuance. I would say not only are we heavily regulated, but I would say it’s a very ongoing conversation between us and our regulators. So, to Ken’s point, like they’re very aware of transactions that we’re entertaining, participating in things that we’re actively working on and potentially might close things that we are closing and then we go through a really rigorous annual testing of asset adequacy and all those kinds of things. So, I think that there’s a lot built into the framework of how to make sure that participants are protected, like I said, if I had to do it over again, I would spend more time on and I think that the litigation has probably tripped on to that in a way that is probably slowing a couple of things down and I think it’s incumbent upon us to try to continue to help people understand the marketplace and the protections that are afforded them here.
Lane Kent
Maybe, Travis, for you I’ll frame the question just a little bit differently relative to market volatility which this last 90 days has seen some pretty wild swings. Does that have an impact on the velocity of the market or deal flow or pricing?
Travis Jones
It does. It absolutely does. And I mean, I think a lot of the growth that we have seen in the PRT market over the last decade or so really has been on the back of strong market returns, rising interest rates that led to improved funded statuses of these pension plans. You know, if you rewind the clock back to year end 2011, the average S&P 500 pension plan sponsor, the funded status of their plan was about 78% today that’s over 100%. And so, they’ve put in a lot of work and a lot of effort over the last decade plus to get these pension plans into a healthy spot and so though all of the market volatility, all of the uncertainty that’s out there could potentially have the impact of pushing them to move quicker and wanting to relieve themselves of these risks, but also it could have the impact of saying hey, we want to wait and see how the markets can react to all of this volatility from a pricing perspective, we’ve got our pension plan on a client path. It’s well hedged. We’re able to weather some of these storms. So, let’s kind of hit pause and wait and see again. It’s going to be very planned. Sponsor specific, which of those two groups they find themselves in. But I think those are the two ways that a plant sponsor might be looking at it and thinking about the market volatility and then also as Glenn said, you know with the PRT litigation that’s hanging out there, I think that’s putting some uncertainty into the market as well and we’re going to have to kind of wait and see how those shake out and how they they’ll ultimately impact the market.
Lane Kent
Terrific. We’re getting some good questions coming in from the people that are participating. I’ll start with one here and maybe direct this to you, Glenn, and then Ken, if you’ve got some perspective on this as well. The question is, can you do a PRT? For a 4O3b plan, and if so, are there any unique considerations there?
Glenn O’Brien
I would say that the standard for the marketplace is in most of the contracts we have filed and approved within the states that we operate in are for ERISA qualified pension plans. So if the actual tax qualification of the plan is less concerning to the insurance community. You know, non-qualified plans, a variety of different plans. What we’re always going to be interested in is what are the liability dynamics? So, what are the cash flow obligations of the plan and how are they created? What are the optionality that the participants retain, if any, at the time of retirement and how similar does it look to what I’ll call a regular PRT transaction from a normal defined benefit plan structure. So, I think of it as there’s nothing prohibiting it for sure. But you know if we can get all answers to those questions, then I think that there is a path forward. To try to create something.
Lane Kent
And any unique considerations from your perspective?
Ken Cotrone
No, I think Glen nailed it answering those questions up front when they the insurer, brings this transaction to us. It is very, very helpful.
Lane Kent
Terrific. Our next question from the field here. How do you handle 65+ missing participant data after various unsuccessful efforts to locate that? Maybe I’ll direct that to you, Travis, if you got the perspective on that.
Travis Jones
Yeah, this is a question that we get on a very regular basis. So, the short answer is going to be ultimately they’re likely going to the Pension Benefit Guarantee Corporation if you’re working with an ERISA qualified pension plan. The PBGC has their missing participant program, which can take them on. That is not always the easiest or most cost-effective way of relieving the plan of those obligations. So, I would say prior to giving to that point you obviously want to put in a diligent effort to try and reach out. It sounds like in this case there’s been many unsuccessful search efforts, and so if that is the case, you know there’s certainly going to qualify for that PBGC missing participant program. The other thing that I’ll say here is it also kind of depends on how many participants you have? If you’ve got just a couple of term investments, for example, that are over age 65 and have it started their benefit, let’s go ahead and include them in the PRT population and see if the insurance companies are able to help you track them down. You know, the insurers have a robust suite of tools that they use to help clean data and look for lives in their day-to-day operations. And so, if it’s a onesie twosie situation? Certainly most plan sponsors and insurers can get together and get that assistance and also, as silly as it sounds, sometimes participants just ignore mailings that come from their former employers, but then they get something from an insurance company and they open it up and they go, oh yeah, I have a pension benefit and even though you’ve tried to reach out to them four or five times in the past, they finally respond when the insurance company sends them something. So, I would say, for a small group of missing participants don’t be shy about trying to include them in the PRT population. Worst case scenario, you don’t find them. The insurance company will say, hey, we need to, we need to take these lives out of the population and turn them over to the PBGC. But sometimes you can find some unexpected successes by working with the insurance company.
Lane Kent
Similar question, should ex ex-employees stay in the plan? Is that always the case? Glenn, maybe you can take that?
Glenn O’Brien
I guess I’ll give you the insurance company perspective around this, just as a comparison. I think if you even just rolled back 10 years ago and this is just permissible on the law, it’s just how ERISA works, you can be in an underfunded ERISA plan. And most participants I’ve been in underfunded, ERISA plan for the better part of a few decades. So, it’s really in the recent time that pension plans are really well funded or funded enough to take on PRT transactions. Unlike an ERISA plan, insurance companies, we’re not allowed to run underfunded annuity businesses, right. So, we have to keep more assets versus our liabilities at all times. And King’s very good at making sure so. So, I would just say that there’s a big rule difference between the two regimes and ERISA plan sponsor and what the financial requirements are to create solvency versus the insurance company and the rules we live under to create solvency. And I think people just need to decide for themselves what they’re comfortable with. I would say our rules are more strict than a general ERISA plan. I think it’s just generally accepted. Second, is you know we’re an industry that really is very dedicated to our credit ratings. So, you really don’t find too many industries besides the insurance industry that is pursuing an AAA credit rating. Most companies will look towards an efficient frontier. Their cost of debt versus their capital and be rated Triple B and so on. So, our livelihoods are often pegged to our credit ratings. Our rules are really protective over participants and being able to pay them over a long period of time. So, I’ll leave that for the question the person who asked that question to consider.
Travis Jones
Yeah. And I think Glenn did a really good job of coming at that from the perspective of if given the choice, do I stay in the pension plan or do I transition over to the insurance company? Maybe I can tackle it from a plan sponsor perspective to think about what is the appropriate way to go about settling liabilities for terminated vested or former employees that have not yet started receiving a benefit, typically are lift out transactions, we would say more times than not. Those employees, those term vested, are not going to be included in a lift out. It’s not to say they can’t. We have had some PRT transactions that did include term vesteds, but by and large there are more efficient ways to settle obligations for that terminated vested population. Usually plan sponsors for those they’ll look at running a lump sum window so they’ll give former employees a one-time opportunity to receive their benefit in a single sum payment, rather than remaining with the pension plan the IRS sets forth minimum interest rates that are used for those. Calculations and mortality that’s used, but even still, a lot of times the plan sponsor is going to be able to settle via a lump sum. The obligations for those term vested at something pretty close to their overall accounting obligations that they’re holding for those participants now you know, gender, things like that are going to have a little bit of an impact on how close you are to that accounting liability because you know the mortality for is unisex and you’ve got prescribed interest rates, but generally speaking, pretty cheap way to go about settling those obligations if you’re looking at purchasing. An annuity from an insurance company for those former employees, it’s going to be more costly because the insurance companies going to have to keep track of those people just like the plan is for the next 20-30 plus years until they start their benefits. And there’s a lot more uncertainty around when they’ll start, what form of payment they’ll take. And so for those lives you’ll look at a premium of maybe 10- 15% or more relative to your accounting obligations to go out to the insurance marketplace and purchase benefits for those participants. And so usually left out of the lift outs for planned termination. Obviously, you don’t have that option. Those participants are going to have to transition over to the insurance company. If they don’t take a lump sum, but that is why we often see a lump sum window run as part of the plant termination process to give participants that choice. And in the context of a planned termination, we often see, you know, 80% plus of current active employees taking a lump sum benefit. And maybe you know, 50% or more of those former employees who have not yet started their benefits taking a lump sum as part of the planned termination process. So, you will certainly see that population shrink from start to finish during the planned termination process, which can be a net good guy from a planned sponsor person. Active in that, though, you’re settling benefits more cost effectively, but it’s also a good guy from a participant perspective because they had that choice and they now have the financial flexibility to do what they want with that money if they so choose.
Lane Kent
Terrific. Next question. You both have mentioned, Glenn and Travis, on a couple of occasions during this call, some litigation in the space. Is there anything you can share about the status of those of those activities or the impact that they might have other than maybe causing some jumbos to wait it out and to see what happens?
Glenn O’Brien
Yeah, it’s part of the public records. So, there was too early not to see well. I guess we called the decision. Some, you know 11, motion to dismiss was granted and one motion to dismiss was not. So, I would say of the I think 9 or 10 cases that are out there. There’s sort of 2 different answers to the same question. So, I think we’re all sort of sitting here waiting to see, you know what becomes of that? The motion to dismiss that was not granted. What the next step is in that suspect, and I’m not sure if I don’t know actually, but I suspect that that it’s under appeal and we’ll see. So, I would say that sort of the state of where things where things sit at the moment.
Travis Jones
Yeah, I agree with Glenn. We’ve seen one dismiss the that was the Alcoa case, the Lockheed case, that’s where the motion to dismiss was denied. Again, that doesn’t necessarily mean anything in terms of the merits of the suit, it just merely means that there wasn’t enough done to convince the courts to dismiss. And so, we have heard that Lockheed is planning to appeal that decision, so more to come there and I guess you know the market in general is kind of in a waiting period to see how these are going to play through. The other thing that I’ll say here is this is not the first time that we’ve seen PRT litigation. Some of the first annuity lift outs that that were transacted back in 2012 spurred litigation. You might be familiar with Lee versus Verizon and so that, you know was ultimately dismissed as the participants didn’t have any standing, they hadn’t been harmed in any way. And so, you know, just kind of underscoring here, this is the Travis Jones opinion. I don’t think there’s anything in the new PRT litigation that brings forth information that was previously unknown or factors that weren’t already considered by the planned sponsors or the independent fiduciaries, when making the decisions that they did and selecting the insurance companies that they did so, you know, we’ll see what happens. But I think the odds of this being a huge watershed moment for the PRT industry are probably pretty low. But not 0.
Lane Kent
Yeah, terrific. Well, that’s all the questions that we got from the field. So, we’ll wrap it up here. I just want to take a moment here to thank Travis and Ken and Glenn for their participation in making this an excellent time and we really appreciated all the insights and the expertise that you bring to the conversation and best of luck to all of you in your endeavors in this robust market.
