The average cost of a defined benefit plan purchasing a group annuity contract from an insurer fell to 105.3% of the assets being transferred in December, the latest Mercer U.S. Pension Buyout Index said.
It fell from 109% the previous month and reflects new mortality assumptions instituted in 2014 by the Society of Actuaries.
Those assumptions increased the value of pension liabilities on corporations' balance sheets, making the difference between the premium and continuing to administer the plan less than before, said Richard McEvoy, partner and head of Mercer's financial strategies group, in a telephone interview.
It does not change the actual premium cost, Mr. McEvoy said, but “what's changing is the fact the accounting obligations are now closer to those premiums, so the gap between the two is now a lot tighter than it used to be.”
Mercer launched the index in February 2013 to provide plan executives with monthly pricing information on annuity purchases.
Information on the latest Mercer U.S. Pension Buyout Index can be found on Mercer's website.
