April 2026 Pension Risk Transfer Pricing Update

Executive Summary

According to the latest Pension Finance Update (https://www.octoberthree.com/articles/pension-finance-update-march-2026/), Pension finances weakened in March due to declining stock markets. However, rising interest rates helped offset these pressures. Overall, the broader trend of the past year remains positive with many corporate plans seeing significant improvements in funded status. That said, recent market fluctuations are a clear reminder that funded positions can shift quickly in this dynamic market environment. For plan sponsors, this underscores the importance of proactively finding ways to manage risk. Periods of relative strength can create valuable opportunities to implement de-risking strategies and consider gradual exits from the defined benefit system. Even for sponsors not ready to execute a transaction, early preparation is critical. Working with an annuity search firm to establish a clear strategy, continuously monitor market conditions, and evaluate appropriate approaches can further strengthen a plan’s position in 2026.

PBGC premiums have risen again for 2026 and are expected to continue to increase every year going forward. Plan sponsors do not need to pursue an annuity purchase for their full retiree census. Annuity purchases can occur selectively, including a retiree carve-out which focuses on participants with smaller benefits. PBGC premiums are charged per participant rather than by benefit amount so this approach can produce high PBGC cost savings and support long-term cost goals for pension plans.

Defined benefit pension plan costs are rising sharply in 2026, driven largely by escalating PBGC premiums, which have increased dramatically over the past decade and now exceed 1% of plan assets for many sponsors. While Pension Risk Transfer (PRT) transactions are often viewed as expensive relative to GAAP liabilities, this perception overlooks the significant impact of ongoing PBGC and administrative costs. When these factors are included, annuity purchases, particularly for retirees with smaller benefits, can be a more cost-effective solution that improves overall plan economics. October Three’s PBGC breakeven analysis identifies key thresholds, showing that annuitizing retirees with monthly benefits below approximately $380 (or up to $1,070 for plans subject to the VRP cap) can generate savings, with even greater benefits when additional administrative costs are considered. As PBGC expenses continue to erode plan assets, this analysis serves as a critical tool for plan sponsors evaluating PRT strategies.

Pricing Update

A combination of market uncertainty, unclear interest rate trajectories, and rising trade tension are driving increased activity in the pension risk transfer (PRT) market. In this environment, plan sponsors are encouraged to reassess their risk exposure and proactively explore strategies to strengthen financial stability. As we move into April, annuity purchase rates have shifted upwards. This is a notable development following the recent market volatility, offering a measure of relief.

The average duration 7 annuity purchase interest rate rose to 4.91% while the average duration 15 annuity purchase rate reached 5.02%. Against this backdrop, pension risk transfers remain an excellent strategy for organizations wishing to reduce risk exposure. By shifting pension obligations to insurers, companies can mitigate financial risk, while honoring the commitments made to their plan participants.

Historical Activity

The 10-year treasury rates began the month at approximately 4.33%, while the 30-year treasury rate opened at 4.91%. Since then, both rates have teetered back and forth a bit, reflecting the ongoing market volatility and uncertainty. In April of 2025, the 10-year treasury rate averaged about 4.28%, and the 30-year averaged around 4.71%. Current levels therefore have remained elevated relative to the averages we recorded last year – an encouraging factor for pension plan funding and de-risking considerations. Given the inherent unpredictability of market timing, early engagement remains a valuable strategy. Allowing sufficient lead time enables plan sponsors to take advantage of conditions when favorable, maximize insurance participation, and ultimately achieve more competitive and efficient outcomes

Annuity Costs Relative to GAAP

The graph below shows the spread between the annuity purchase price and the GAAP projected benefit obligation (PBO), also referred to as the accounting book value. This month, the spreads of Annuity Plan 1 and Annuity Plan 2 spread slightly. For Annuity Plan 1, the spread is sitting at around -0.31% while Annuity Plan 2’s spread is approximately 5.34%. As annuity purchase rates increase, purchase prices drop relative to the PBO. Please note that the PBO figures shown do not include future overhead costs—such as administrative expenses and PBGC premiums—that plan sponsors would incur by retaining participants in the plan.

PBGC Breakeven Analysis Driving PRT Transactions

The cost to maintain a defined benefit pension plan continues to climb sharply in 2026. These costs are driven primarily by the increasing premium plan sponsors pay to the PBGC. Flat rate premiums have more than tripled since 2012 while variable rate premiums have increased fivefold. As a result, many plan sponsors now find themselves paying over 1% of total plan assets annually to the PBGC and for plan participants who no longer work for the company, sponsors are paying premiums to the PBGC for the right to pay those employees a future pension benefit.

While a Pension Risk Transfer (PRT) is often perceived as cost prohibitive when compared to GAAP liabilities, this comparison does not factor in administrative expenses and most notably, PBGC premiums, both fixed and variable. When these overhead costs are properly accounted for, annuity purchases frequently emerge as the more cost-effective option, improving both financial statements and long-term plan economics. This is particularly compelling because PBGC premiums are largely fixed per participant, regardless of benefit size, making smaller-benefit retirees disproportionately expensive to retain.

October Three conducted a PBGC breakeven analysis which highlights thresholds that can help plan sponsors identify where an annuity purchase makes financial sense. For plans not subject to the PBGC variable rate premium (VRP) cap, annuitizing retirees with monthly benefits below approximately $380 can generate savings. For plans subject to the cap, that threshold rises to about $1,070. For a plan that is paying VRPs but is not at the VRP cap, the breakeven point would likely fall between $380 and $1,070. Including additional administrative costs only strengthens the case, pushing these break-even points even higher. As PBGC expenses continue to erode plan assets the PBGC breakeven analysis is a critical tool that plan sponsors should use when reviewing the feasibility of a PRT. To learn more about this analysis click here.

For additional information or inquiries about the pension risk transfer marketplace, contact Mark Unhoch: munhoch@octoberthree.com.

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*October Three advises plan sponsors through every step of the Pension Risk Transfer (PRT) process. Through long established relationships with insurers in the PRT marketplace, October Three collects annuity purchase rates for Duration 7 years and Duration 15 years on a monthly basis. We have constructed 2 hypothetical annuity plans which have been valued using the latest mortality tables and mortality improvement scales. Annuity Plan 1 contains retirees only and has a liability duration of 7 years. Annuity Plan 2 contains 70% retirees and 30% deferreds and has a liability duration of 15 years. Monthly annuity rates are determined by taking the average Duration 7 and Duration 15 interest rates provided from the insurers. Annuity Plan 1 was valued using the average of the Duration 7-year interest rates collected from insurers and Annuity Plan 2 was valued using the average of the Duration 15-year interest rates collected from insurers. Using the collected annuity purchase rates and 2 hypothetical annuity plans, we have produced the following graphs representative of actual PRT market activity and the corresponding impact on pension plans.