Group annuities continue to grow in popularity with pension plan sponsors of all sizes to manage risk and secure member benefits. In 2024, the market surpassed $11B in transactions in a single year for the first time ever. It grew over 40% from 2023 and is now 4 times larger than it was in 2015. This growth was fueled by several factors, including healthy pension plan funded statuses and plan sponsors’ desire to transfer investment and longevity risks. With the economy likely remaining unpredictable in 2025, we can expect the PRT market to continue to grow as plan sponsors look to reduce volatility.

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Fixed income investments are evolving to meet investors’ changing needs. Beyond their traditional roles of diversifying portfolios, providing liquidity and protecting capital, these investments now meet new demands. Today, the expanded fixed income toolkit can generate additional income, offer higher yields, and hedge a broader range of liability risks including inflation, yield curve, and credit spread risks. 

This shift reflects a broader trend of pension plans adapting to a new environment, where fixed income is transforming into a more powerful and versatile investment strategy. 

3. Timing can be everything, seize the moment

Foresters Financial’s plans to de-risk began decades ago, with the intent to find a new home for their pension plan liabilities. With that in mind, they prepared by aligning their assets with future obligations.  When interest rates rose, creating favorable conditions, Foresters seized the opportunity to purchase an annuity. While market conditions played a role in Foresters’ decision – their proactive approach allowed them to capitalize on a prime moment. 

4. Focus on core competencies and outsource strategically

One thing many find intriguing is Foresters Financial’s choice to buy an annuity, despite having in-house investment expertise. This aligns with a broader trend of organizations reducing pension risk to focus on their core business.

Their journey included freezing their defined benefit (DB) pension plan, outsourcing certain functions, and introducing a defined contribution (DC) plan and other saving vehicles. Realizing that many employees would be making investment and contribution decisions for the first time, Foresters prioritized providing education and resources to support their members. However, they soon realized that managing a legacy DB pension plan added unnecessary complexity. By pursuing an annuity purchase, Foresters was able to reduce volatility and free up resources to focus on their employee experience. 

5. Member experience matters in de-risking 

Foresters Financial’s decision to close their DB plan and modernize their DC plan was made with a great deal of consideration. Throughout the de-risking process, Foresters focused on the financial stability of the company as well as a smooth transition for plan members.

They ensured Sun Life could provide great Client service, understand plan nuances, and handle post-retirement processes. It's a great reminder that de-risking isn't just about numbers – it's about ensuring a seamless transition and ongoing positive experience for plan members.

To learn more, watch the event recordings.