Unlocking Hidden Savings: Small Benefit Retiree Annuity Purchases in a Competitive Market

As the annuity market continues to mature and more providers enter the space, we are seeing strong competition and increasingly attractive pricing for plan sponsors. That momentum is translating into real outcomes, with many transactions settling at or even below the liability held on the balance sheet.

As plan sponsors look ahead to 2026 and evaluate their de-risking strategies, one targeted approach worth highlighting is the small benefit retiree annuity purchase.

With PBGC flat-rate premiums now at $111 per participant and the Variable Rate Premium capped at $751 per participant, there is a meaningful opportunity, particularly for underfunded plans, to revisit how they approach cost reduction.

So, what is a small benefit retiree annuity purchase, and why should underfunded plans consider it?

The objective is straightforward: maximize the number of participants settled while minimizing the assets required. This is achieved by segmenting the retiree population by benefit size. Because each participant carries similar administrative and PBGC costs, regardless of benefit level, removing smaller benefits first delivers the greatest return per dollar spent.

For plans with a sizable retiree population, this can translate into meaningful savings, often hundreds of thousands, and in some cases millions, while preserving the majority of plan assets for future strategy.

This approach is also highly flexible. It can be structured to align with specific goals, whether that is maximizing return on investment, managing accounting settlement thresholds, or improving overall plan efficiency.

Below is an illustrative example showing how small benefit retiree annuity purchases can generate meaningful savings:

Focusing on smaller benefits can maximize economic savings while preserving plan assets. By selectively targeting participants, plan sponsors can reduce ongoing PBGC premiums and administrative costs in a highly efficient way.

This is a simple, often overlooked lever that can reduce ongoing costs and complexity, especially in today’s competitive annuity market. For plan sponsors evaluating 2026 strategies, a small benefit retiree annuity purchase is a practical way to unlock savings and improve plan efficiency without overcommitting assets.

If you would like to explore how this strategy could work for your plan, contact us to discuss a tailored analysis focused on maximizing savings and strengthening your overall pension strategy.