Pension Risk Transfer

Pension Risk Transfer

Learn how your organization can benefit from pension risk transfer. 

What is a Pension Risk Transfer?

A pension risk transfer (PRT) transaction is a de-risking solution where a defined benefit pension plan sponsor removes the plan’s obligation to provide future benefit payments to participants through either a single lump sum payment or a transfer of the obligation to an annuity provider. Plan sponsors may settle all of the pension plan’s obligations through plan termination or settle part of the pension plan’s obligation as part of a smaller de-risking strategy.

What are the Benefits of Pension Risk Transfer?

Historically, defined benefit pension plans have been used to recruit, retain and reward employees with pension benefits. However, as more defined benefit pension plans freeze accruals and close to new employees, they no longer provide the originally intended incentives. The pension plan liabilities can be volatile, costly and time-consuming to administer.

A pension risk transfer transaction can benefit an organization looking to de-risk and redirect resources to its primary business activities while upholding legacy obligations to plan participants. Choosing to initiate a PRT transaction may help organizations mitigate financial risks including:

  • Fluctuating interest rates
  • Earnings volatility
  • Participant longevity
  • Investment return
  • Administrative demands and expenses

What are the Types of Pension Risk Transfers?

The two primary types of pension risk transfer transactions are lump sum settlement and annuity purchase. Both types of PRT transactions eliminate risk by settling the plan’s obligation to provide future plan benefits.


An annuity purchase comes in two options: a buy-out and a buy-in. 

The most common ways to transfer risk are via:

  • Lump Sum Settlement

    A lump sum settlement is a transaction where the plan pays a single lump sum to a participant (or designated IRA provider). The lump sum amount reflects the present value of all future expected benefit payments.

  • Annuity Buy-Out

    An annuity buy-out is a transaction where an insurer provides an irrevocable commitment to directly make all future pension payments to plan participants until all obligations are satisfied. The pension plan no longer has any obligation to the participants. 

  • Annuity Buy-In

    An annuity buy-in is a transaction where an insurer provides a revocable commitment to fund future pension payments until all obligations are satisfied. The insurer pays the plan – not the participants. The buy-in is an asset of the pension plan and includes the option to convert to a buy-out.

How Can Aon Help with Pension Risk Transfer?

Managing risk and costs is an ever-present concern among corporate pension plan sponsors. Our goal at Aon is to help manage these risks and costs through innovative de-risking strategies, which include effective asset/liability management strategies. We collaborate with plan sponsors to develop strategies that address their specific risk and cost management objectives while bringing our market-leading expertise on pension de-risking.

  • Develop a Plan Specific Strategy

    When developing an appropriate strategy, Aon utilizes a full suite of asset/liability management techniques ranging from interim risk reduction strategies (i.e., plan design review, investment strategy and liability transfer) to full pension plan termination. These strategies are developed to fit into a client’s overall risk management framework:

    Pension Risk Transfer Framework

  • Analytics and Actionable Outcomes

    Aon has a history of conducting robust feasibility analyses of various pension risk transfer opportunities. Our analysis focuses on providing plan sponsors with the information they need to enable them to assess the merits of transacting in the PRT space. Aon focuses on education, financial outcomes, investment strategies, and a detailed review of data readiness and plan rule considerations.

  • Lump Sum Settlement

    Aon’s pension plan administration team is fully integrated within Aon’s Pension Settlement Solutions team, providing plan sponsors with expertise in project management, customized participant communications tailored to each plan notices and processing participant elections.

  • Annuity Placement Leaders

    Through our expert resources and proven process Aon is a global leader in the PRT business. Since 2012, Aon has advised on over 425 annuity placements covering over $125 billion or premium. Aon has strong relationships with annuity providers and a deep understanding of the regulations and due diligence requirements to assist in executing an annuity purchase.

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