Corporate Pension Risk Transfers

Sponsors of corporate defined benefit (DB) pension plans in the United States transferred $155 billion pension obligations to insurance companies between 2012 and 2022. These pension risk transfers (PRTs) reduced the pool of corporate DB plan participants by 12% and are a huge business for the involved insurers. We assemble a new PRT database and highlight three features of PRTs: (i) the burden associated with mandatory Pension Benefit Guaranty Corporation (PBGC) insurance premiums drives PRT activity; (ii) using an upper bound measure for the impact of PRTs, we estimate that the average sponsor reduces its pension obligations and plan participants by 22% and 27%, respectively. These large reductions are mainly because of the transfer of retired plan participants to insurance companies. (iii) Plan sponsors that conduct PRTs have less default risk and less volatile pension assets even after conducting the PRTs. Hence, PRTs increase the risk of the remaining PBGC pool. This paper was accepted by Lukas Schmid, finance. Funding: S. Klingler gratefully acknowledges support from the European Research Council [Grant 101040188]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.05523 .