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Author: Joseph Anzalone

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February 2026

For more than a decade, transferring a portion of retiree obligations to insurance carriers — known as pension risk transfer (PRT) — has been a popular strategy for defined benefit (DB) pension plan sponsors. By transferring the responsibility of paying retirees to insurance carriers in exchange for an asset transfer (or "premium"), sponsors reduced risk and operational costs. Historically, these reductions came at a price, as premiums were slightly higher than balance sheet liabilities, and pension expense sometimes increased due to reduced expected asset returns.

Now, the PRT landscape has shifted dramatically as a result of increased competition. Premiums have dropped significantly, often below balance sheet liabilities. Sponsors can now eliminate the cost and risk of retiree obligations while improving their balance sheets and potentially reducing pension expense, making PRT a win-win solution. This outcome is especially true if the amount of retiree obligation is less than the amount of hedging assets in the pension portfolio.

For many corporate plan sponsors, the DB plan liabilities will ultimately be transferred to an insurance company. The premium for this type of transaction is as low as it has ever been, but there's no guarantee it will stay that way. Plan sponsors should consider a PRT transaction today.

Why pension risk transfer makes sense now, especially for plans using liability-driven investing

For plans using fixed income or liability-driven investing (LDI) to hedge retiree obligations, the current environment presents a unique arbitrage opportunity. While LDI is a strong hedging tool, it has limitations:

Investment risk: LDI is subject to tracking errors, downgrades and defaults.

Longevity risk: Retirees living longer than expected increase liabilities.

Additional costs: Plans still face administrative expenses, Pension Benefit Guaranty Corporation (PBGC) premiums and operational costs.

PRT eliminates these risks and costs entirely, offering a level of security that no hedging program can match. Sponsors can now achieve this with fewer assets than hedging requires, further improving their financial position.

LDI Versus PRT Side-by-Side
Category Hedging with LDI PRT
Investment risk Tracking error, downgrades and defaults None
PBGC premiums $111-$862 per person per year None
Administrative costs Present None
Assets required to cover $50M of PBO $50 million $47 million-$49 million*

*illustrative range. Subject to market pricing. Actual cost could be lower or higher than this range.

PRT not only eliminates risks but also reduces the assets required to manage retiree obligations. For sponsors relying on LDI, this is a significant opportunity to optimize their pension plans.

Why every pension sponsor should consider pension risk transfer

Every pension sponsor using fixed income assets to support their retiree obligations should strongly consider trading in a portion of those assets for a PRT transaction. The benefits include:

  • Risk elimination: PRT removes financial, demographic and operational risks.
  • Cost savings: Premiums are now often below balance sheet liabilities.
  • Potential for improved pension expense: Reduced interest cost and plan expenses could outweigh reduced expected asset returns if paying the premium with LDI assets.
  • Operational efficiency: PRT eliminates administrative burdens and other operational costs related to the participants covered by the transaction.

Act now

With premiums at historic lows, the PRT market offers DB plan sponsors an unprecedented opportunity to reduce costs, eliminate risks and improve balance sheets. For sponsors relying on LDI, the case for PRT is even stronger — it's your chance to achieve better outcomes while using less of your pension assets.

At Gallagher, we help organizations navigate pension challenges and seize opportunities like PRT. Contact us today to learn how we can help you secure a brighter future for your pension plan.

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Disclaimer

This material was created to provide information on the subjects covered, but should not be regarded as a complete analysis of these subjects. The information provided cannot take into account all the various factors that may affect your particular situation. The services of an appropriate professional should be sought regarding before acting upon any information or recommendation contained herein to discuss the suitability of the information/recommendation for your specific situation.

Consulting and insurance brokerage services to be provided by Gallagher Benefits Services, Inc. and/or its affiliate Gallagher Benefit Services (Canada) Group Inc. Gallagher Benefit Services, Inc. is a licensed insurance agency that does business in California as "Gallagher Benefit Services of California Insurance Services" and in Massachusetts as "Gallagher Benefit Insurance Services." Neither Arthur J. Gallagher & Co., nor its affiliates provide accounting, legal or tax advice.

Investment advisory services are offered by Gallagher Fiduciary Advisors, LLC ("GFA"), an SEC registered investment advisor that provides retirement, investment advisory, discretionary and independent fiduciary services. Registration as an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. GFA is a limited liability company with Gallagher Benefit Services, Inc. as its single member. GFA may pay referral fees or other remuneration to employees of Arthur J. Gallagher & Co. or its affiliates or to independent contractors; such payments do not change our fee. Neither Arthur J. Gallagher & Co., GFA, their affiliates nor representatives provide accounting, legal or tax advice.