Milliman’s latest Milliman Pension Buyout Index (MPBI) shows that during July, the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased more than two percentage points, from 100.3% of a plan’s accounting liabilities (accumulated benefit obligation) to 102.5% of those liabilities.
That means the estimated retiree PRT cost is now 102.5% of a plan’s ABO. During the same time period, the average annuity purchase cost across all insurers in our index also increased, from 103.3% to 104.9%. The competitive bidding process is estimated to save plan sponsors about 2.4% of PRT costs as of 31st July.
“With the volatility in bond markets in July, retiree buyout costs spiked to their highest levels in over four years,” said Jake Pringle, a Milliman principal and co-author of the MPBI.
“Accounting discount rates dropped but PRT rates dropped substantially more, as plan sponsors watch for the Fed’s next move and what it means for the PRT market.”
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.