During May, the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased from 98.3% of a plans accounting liabilities (ABO) to 100.5%, according to premier and global consulting firm, Milliman.
This means the estimated retiree PRT cost is now 100.5% of a plans’ ABO.
However, during the same time period, Milliman states that the average annuity purchase cost across all insurers within the firm’s index also increased, from 101.9% to 103.3%.
The competitive bidding process is estimated to save plan sponsors about 2.7% of PRT costs as of May 31.
These results are from Milliman’s Pension Buyout Index (MPBI).
Milliman notes that as the PRT market continues to grow, it has become “increasingly important” to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer.
“With competitive retiree buyout cost back up above 100% for the first time since January, plan sponsors are eyeing what triggered this increase,” said Jake Pringle, a Milliman principal and co-author of the MPBI.
“Insurers may have less enthusiasm for interest rate risk or fewer assets available for transactions as we head into Q3. Plan sponsors with PRT projects on the horizon are likely closely monitoring the Federal Reserve’s interest rate decisions, and it will be interesting to see if this upward trend continues through year-end or if buyout costs reverse direction again.”
