Consulting and actuarial firm Milliman Inc.’s latest Milliman Pension Buyout Index (MPBI) shows that the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased from 100.3% of a plan’s accounting liabilities (accumulated benefit obligation, or ABO) to 100.9% of those liabilities. That means the estimated retiree pension risk transfer (PRT) cost is now 100.9% of a plan’s ABO. During the same time period, the average annuity purchase cost across all insurers in our index also increased, from 102.6% to 103.3%. The competitive bidding process is estimated to save plan sponsors about 2.4% of PRT costs as of April 30.
“Competitive buyout costs increased slightly in April, to 100.9% of ABO, which is about average for the past 12 months,” said Jake Pringle, a Principal at Milliman and co-author of the MPBI.
“With interest rates at their highest levels so far in 2024, plan sponsors with projects in the works could be optimistic about competitive pricing for their pension risk transfers.”
The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from nine insurers, to estimate the competitive and average costs of a PRT annuity de-risking strategy. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape.