Annuity “Buy-In” or “Buy-Out”

What is the difference between a pension risk transfer via an annuity “buy-in” or “buy-out?”

With an annuity “buy-in” a plan sponsor purchases one or more group annuity contracts to cover pension obligations with the plan sponsor remaining responsible for making payment to the plan participants.

With an annuity “buy-out” the defined benefit plan sponsor transfers all of its pension liabilities to an insurance company by purchasing a group annuity contract and terminates its defined benefit plan.  A variation on the annuity “buy-out” is the “lift-out” where the plan sponsor purchases an annuity contract to cover the benefits of certain retirees, but other retirees remain covered by the pension plan and the plan is not terminated.