Guides
Pension risk transfer: when your pension becomes an annuity
How employers hand pension obligations to insurers, what ERISA and DOL IB 95-1 require, and what retirees lose or keep when PBGC coverage ends.
A pension risk transfer (PRT) happens when an employer pays an insurance company to take over some or all of its pension obligations. If it happens to you, the company stops paying your pension and an insurer sends you the same monthly amount under a group annuity contract. Your dollar amount normally stays the same, but the entity that owes it changes, and so does the safety net behind it: federal PBGC protection ends and state guaranty association coverage takes its place.
How a transfer works
A defined benefit plan promises specific monthly pensions, which leaves the employer carrying investment, interest-rate and longevity risk. In a PRT the plan sponsor uses plan assets to buy annuities. There are two common structures:
- Buy-out. The plan pays a single premium and the insurer issues annuity certificates to the covered retirees or to former employees with vested benefits. The insurer takes over payment and administration, and the plan is relieved of those liabilities. A buy-out is the type that ends PBGC coverage.
- Buy-in. The plan purchases a group annuity contract as an investment, but the plan still owes benefits and remains under PBGC coverage until a buy-out follows.
Employers also offer lump sums to some participants, usually to former employees who have not started their pensions. Taking a lump sum is your choice; an annuity purchase for retirees generally is not.
How big is the market
According to LIMRA, single-premium buy-out sales were $31.3 billion in 2025, 35% below 2024, across 683 contracts, covering more than 740,000 plan participants. The year was uneven, with the fourth quarter up 32% from a year earlier after weaker mid-year volume amid market volatility. For the wider annuity market see why annuity sales hit records.
What the employer must do: ERISA and IB 95-1
Choosing an annuity provider is a fiduciary decision under the Employee Retirement Income Security Act (ERISA). The plan sponsor and its committee must act prudently and solely in participants' interest. The Department of Labor's Interpretive Bulletin 95-1 (29 CFR 2509.95-1), issued in 1995, explains how that applies. It calls for an objective, thorough and analytical search for the safest annuity available, and says fiduciaries should consider factors such as:
- the quality and diversification of the insurer's investment portfolio
- the insurer's size relative to the contract
- its capital and surplus levels and lines of business
- the structure of the annuity and the guarantees backing it
- the availability and extent of state guaranty association coverage
A fiduciary may use an independent expert. The bulletin applies when the plan buys annuities to pay benefits upon termination or settlement.
Section 321 of the SECURE 2.0 Act directed the DOL to review IB 95-1. In a report to Congress on June 24, 2024, the DOL said it was not prepared to propose amendments to the bulletin at that time but could revisit it, as widely reported by PlanSponsor. Several lawsuits filed in 2024 against employers including AT&T, Lockheed Martin and Alcoa argue the sponsors chose an insurer with a risky structure, including private-equity ownership and offshore reinsurance. The cases are fact-specific and their status changes, so check current dockets rather than relying on a summary.
What retirees lose and keep
| Before transfer | After buy-out | |
|---|---|---|
| Who pays | Employer plan | Insurance company |
| Monthly amount | As set by plan | Normally the same |
| Backstop | PBGC (federal) | State guaranty association |
| Legal form | Plan benefit under ERISA | Insurance contract regulated by the state |
| Survivor benefit | As plan provides | Carried over, e.g. joint and survivor |
| Cost-of-living increases | If the plan has them | Only if the annuity contract preserves them |
The PBGC says its guarantee ends when the plan buys annuities, because the insurer then owes the benefit. Guaranty limits differ. The PBGC's maximum monthly guarantee for a 65-year-old is generally much higher than what a state guaranty association's cap of $250,000 in present value would pay as a monthly pension; a retiree with a larger pension could find part of it above the state cap. Most states cover at least $250,000 for annuity benefits per person, according to NOLHGA, but limits and rules vary by state. See state life and health guaranty associations and state guaranty association coverage lookup. Guaranty associations step in only after a failure, and the payment process can take time.
If you receive a notice
- Read the notice and keep it. It should name the insurer and describe the transfer date.
- Confirm that your monthly amount, payment date, survivor benefit and any cost-of-living increase are unchanged.
- Look up the insurer's financial strength ratings and your state's guaranty limit.
- Update tax withholding forms and direct deposit information with the new payer, and watch for scams that imitate the transition. Verify phone numbers with the plan sponsor.
- If your pension is large, ask whether it exceeds your state guaranty cap and consider speaking with a fee-only financial planner.
- Questions about the plan can go to the Department of Labor's Employee Benefits Security Administration.
Key takeaways
- A PRT moves your employer's pension promise to an insurer through a group annuity, usually keeping your monthly amount the same.
- A buy-out ends PBGC coverage; your protection becomes the state guaranty association, typically at least $250,000 present value for annuities.
- ERISA requires the employer to select the provider prudently, guided by DOL Interpretive Bulletin 95-1.
- LIMRA reports $31.3 billion in 2025 buy-out sales; litigation over private-equity-owned insurers continues.
- Check the notice, the insurer's strength and your state's limit, especially for larger pensions.