Liability-Driven Investing Midyear Outlook 2026: Well-Funded Corporate Plans

Pension risk transfer trends: Buy-outs versus buy-ins

Pension risk transfers (PRT) are implemented by purchasing annuities for participants from an insurance company. With better funded ratios, we might expect to see greater interest in PRTs, which did pick up in Q4 2025, as we expected—pushing annual total transfers into the same ballpark as prior years. However, we’ve noted a difference in 2025 that may continue forward into the future.

Annuity purchases for a pension plan can be executed through a buy-out or a buy-in. Both cover future benefit payments for some or all plan participants. With a buy-out, the pension liabilities and assets leave the plan and are no longer plan obligations once transferred to an insurance company. With a buy-in, participants’ liabilities and assets remain in the plan and continue to be reflected in required contribution calculations and financial statements.

Buy-outs were lower for 2025 than they had been since 2020, with the gap closed by buy-ins around four or five times higher than we’ve seen in the past. For most plans, a buy-in is an intermediate step toward conversion to a buy-out at a later date. The plan sponsor is still on the hook to pay Pension Benefit Guaranty Corporation (PBGC) premiums each year for the participants who remain in the plan. Yet the buy-in gives the plan sponsor more flexibility and certainty in terms of annuity pricing while a time-consuming partial termination plays out. And the plan sponsor can defer settlement accounting that may require costs to be recognized sooner than originally planned.

Given the increase in buy-ins, we believe plan sponsors and investment managers need to have a clear understanding of the plan’s exposure to surplus volatility with the buy-in in place. From the plan’s perspective, the buy-in annuities exactly match the liability, including longevity risk. However, liability values in reporting and the buy-in assets backing them may appear to be unequal. Understanding the difference is key to managing the remaining assets to implement the intended total plan strategy.

Finally, the trend toward fewer PRTs is notable. While we’ve historically seen less PRT activity in first quarters than during the rest of the year, Q1 2026 combined buy-outs and buy-ins are the lowest of any first quarter since 2018.

Pension litigation related to PRTs, accounting benefits of a well-funded plan, existing strategies that stabilize funding levels and lack of urgency for the plan sponsor who may have other preoccupations—these are all factors driving the trend of slowing PRT activity.

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Where this leaves pensions

Looking ahead, we find the usual lesson applies: It’s important to avoid making costly mistakes in a pension plan. Understanding the plan and investments—including the increasingly common case of a buy-in—remains key. For plan sponsors with well-funded plans, falling back into underfunding is the last thing they need.

Higher yields are creating opportunities for investors, as outlined in Parametric’s fixed income midyear outlook. Nevertheless, pension investors still face surplus risk related to yield changes that can result from policy under a new Fed regime, future developments in the Middle East or other uncertainties. Preserving funded status and managing downside risk should take precedence over return maximization at these levels of funding.

The bottom line

With funding ratios that have been stable and growing, pensions are as healthy as they’ve been for a long time. A well-funded, well-managed pension plan may provide benefits for a plan sponsor, who could get lulled into a false sense of security when everything has been going so well.

But let’s remember that risks still exist in pension plans if care isn’t taken. Markets are uncertain, with many potential reasons that the current environment could change. Surplus risk management is the primary goal for well-funded plans, so it’s important to maintain investment strategies that keep the risk exposures within the plans well-known and properly mitigated, helping to preserve pension stability going forward.

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