Challenges in the Pension Risk Transfer Market: Insights and Trends
The pension risk transfer (PRT) market faces challenges beyond litigation fears, as highlighted by Colyar Pridgen of Capital Group. This sector, where corporations shift defined benefit plan liabilities to annuity providers, has grown substantially over the last decade. According to Mercer, the market boasted $48.8 billion in premiums in 2025, maintaining a four-year streak of exceeding $45 billion. For context, PRT volume was $14.1 billion in 2016.
The market is under pressure from rising lawsuits under the Employee Retirement Income Security Act (ERISA) against pension sponsors and annuity providers. These legal challenges argue that PRT deals are risky and breach fiduciary duties. Capital Group also identifies structural barriers potentially affecting future market dynamics.
PRT Market Dynamics and Challenges
PRT transactions occur in two forms: buyouts, where liabilities shift to the insurer through annuity purchase, and buy-ins, where the annuity serves as a plan asset, keeping payment obligations with the fund. In 2025, the U.S. PRT volume decreased slightly from the previous year's $51.8 billion, while buy-ins increased, accounting for about a third of the total volume.
The number of corporate defined benefit plans has dwindled over recent decades. In 1975, these plans composed a significant portion of private pension schemes. Pridgen observes, "There’s an overall decline in pension risk transfer, notably towards buy-ins over buyouts, with litigation risk being a factor."
Impact of Funding and Market Conditions
Many corporate pensions now report surpluses, averaging a 110% funding level, influencing PRT decisions. Pridgen underscores that the current structure of Pension Benefit Guaranty Corporation (PBGC) premiums incentivizes plans with funding shortfalls to transition liabilities to insurers. However, as funding deficits decrease, so do PBGC premium savings, reducing the number of plans benefiting from PRT.
Strong corporate financials have also shifted dynamics. The relationship between pension fund liabilities and sponsors' market capitalizations has improved, with rising valuations and declining liabilities. "Concerns over pensions impacting corporate performance have lessened," Pridgen notes.
Market volatility added hurdles for PRT deals in early 2025, as sponsors delayed projects amid instability from tariff announcements and geopolitical tensions. Pridgen concludes, "In the long term, a decline in PRT activity seems likely, given the shrinking number of incentivized plans," insights to be explored further in an upcoming Capital Group white paper.