Actuarial and consulting firm Milliman’s latest Milliman Pension Buyout Index (MPBI) shows the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process decreased slightly, from 100.9% of a plan’s accounting liabilities (accumulated benefit obligation, or ABO) to 100.7% of those liabilities.
That means the estimated retiree PRT cost is now 100.7% of a plan’s ABO. During the same time period, the average annuity purchase cost across all insurers in our index also decreased, from 103.3% to 103.2%. The competitive bidding process is estimated to save plan sponsors about 2.5% of PRT costs as of 31st May.
“Plan sponsors kept insurers busy setting a new first quarter record with $14.6bn in PRT premiums and 146 contracts,” said Jake Pringle, a Milliman principal and co-author of the MPBI. “With competitive buyout costs remaining relatively stable over the past few months and coming in at 100.7% for May, it will be interesting to see where second quarter numbers land.”
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.
