General Motors Co.'s purchase of a giant group annuity to help it shed $26 billion in pension plan liabilities is leading other employers to examine whether the same strategy to reduce pension risk makes sense for them.

As part of its pension risk-reduction strategy, Detroit-based GM this spring signed a contract to purchase a group annuity from Prudential Insurance Co. to replace benefits that longtime retirees—salaried employees who retired before Oct. 1, 1997—received from the nation's largest automaker.

In addition, thousands of other salaried employees who retired after Oct. 1, 1997, but before Dec. 1, 2011, had until July 1 to decide whether to take a lump-sum pension benefit or continue to receive their monthly payments. Those who continue to receive monthly payments, however, will receive them from Prudential rather than from GM's pension plan.

GM's action is not the first time an employer has turned to an insurer to transfer pension obligations through the purchase of an insurer-issued annuity. In fact, under federal law, when an employer terminates a pension plan it is required to buy annuities from an insurance company, which in turn will pay the promised benefits to participants.

In addition, for many years, employers have been purchasing annuities on a small scale when the number of retirees collecting benefits exceeds a certain target.

But in terms of size, no benefit transfer arrangement between a plan sponsor and an annuity insurer has approached the size of the GM-Prudential annuity transaction, experts say.

It is the size of the deal, as well as GM's name recognition, that has caught corporate attention and, in turn, led other companies to consider whether similar transactions make sense for them.

“A lot of companies have started to look at this approach,” said Bill Bowden, a director with Buck Consultants L.L.C. in Atlanta.

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“GM showed the market there is the capacity to handle such a large transaction,” said Glenn O'Brien, a managing director with Prudential Financial Inc. in New York.

Corporate interest in the approach taken by GM, simply known as a pension buyout, is being fueled by one key factor: As the size of their pension obligations have grown, employers no longer want to be exposed to the chief risk—required plan contributions made unpredictable by fluctuating interest rates and varying investment results—inherent in defined benefit plans.

Indeed, between 1999 and 2011, average pension plan funding levels of the employers with the 100 largest pension programs has ranged from a high of 130% in 1999 to a low of 79.2% in 2011, according to research by pension actuarial consultant Milliman Inc.

Accompanying those changes in funded ratios most recently are huge increases in required pension plan contributions. For example, Towers Watson & Co. last year projected that employers, excluding a few categories, such as nonprofit organizations, would have to contribute $175 billion to their plans in 2012, up from just $91 billion in 2010.

“That kind of volatility attracts the attention of CFOs,” said Dylan Tyson, a Prudential Financial senior vice president in Woodbridge, N.J.

By going to an insurer and purchasing an annuity that will pay the promised benefits, that contribution volatility is removed.

“Plan sponsors are being drawn to a removal of pension liabilities,” Mr. Tyson said.

Still, while corporate interest in the approach is growing, it is unlikely for several reasons that there will be a stampede of employers following the path blazed by GM.

One reason is that many pension plans are currently significantly underfunded. Indeed, at the end of July, the average funding level of pension plans sponsored by companies in the S&P Composite 1500 fell to a record low of 70%, according to an analysis by Mercer L.L.C. in New York. The decline was driven by falling interest rates, which drives up the value of plan liabilities.

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With plan funding levels so low, employers will have to pump a lot more money into the plans before annuity insurers will take on the obligations.

Corporate executives are saying, “We'd love to do this now, but it is too expensive for now,” said Jack Abraham, a principal with PricewaterhouseCoopers L.L.P. in Chicago.

Indeed, GM disclosed that it would have to spend $3.5 billion to $4.5 billion on the transaction, which includes boosting funding of the pension plan and the cost of buying the group annuity. Prior to the transaction, GM's salaried employees' plan was 92% funded.

In fact, some employers have deferred action because such a transaction would require an acceleration of plan funding, said Matt Herrmann, a senior retirement consultant with Towers Watson in St. Louis.

On the other hand, employers face another risk by waiting. If interest rates rise in the future, the value of fixed-income investments such as bonds held by their pension plans will decline in value, decreasing the level of plan funding and requiring them to put more money in the plan before an insurer will take on the obligations.

Because of the uncertainty about future interest rates, employers may decide to purchase annuities for only certain plan participants, such as a select group of retirees, experts say.

“You don't have to do everything at once. You can do buyouts for some participants, but not for all,” said Sean Brennan, a Mercer principal in New York.

“You can do it in chunks, so that plan liabilities never grow beyond a certain amount,” PwC's Mr. Abraham said.