Longevity is increasing the risk faced by DB plans, since it requires payments for more years and greater funding of plans, and there has been a steady growth of pension buyouts as a method of managing risk.

MassMutual cites LIMRA Secure Retirement Institute figures that indicate the growth of PRT to $26.4 billion in 2018, from $3.84 billion in 2013.

The report says, "The increase in PRT activity tracks both increases in pension funding levels as well as rising premiums paid by employers to the Pension Benefit Guarantee Corp. (PBGC), the federal agency backstopping pensions of American workers. PBGC premiums for single-employer plans have more than doubled in the past 10 years, rising to $80 per participant in 2019."

The white paper examines four different strategies:

1. Hibernating risks—closing a DB plan to new participants—stops accruals, which protects against benefit increases, but it does not eliminate other risks, such as interest rate risk.
2. Establishing glide paths moves plan investment allocations toward fixed income as a plan's funded status improves, and provides a couple of other advantages: it helps diminish the risk-reward tradeoff associated with equities, and also provides a hedging effect against the rise or fall of interest rates via fixed-income assets.
3. Hedging risks can take the edge off volatility, although it won't eliminate all risk and can't hedge against every eventuality.
4. Purchasing annuities as part of a PRT transaction offloads longevity risk while replicating a DB plan's pension benefits. It also provides the services required to support annuitants.

READ MORE:

• Mitigating your pension risk in 2019
• Late-year volatility erases earlier 2018 gains for corporate DB plans
• PBGC issues guidance on alternative withdrawal strategies from multiemployer plans