The average cost of purchasing group annuity contracts for U.S. corporate defined benefit plans was 97.7% as of June 30, according to Mercer's U.S. pension buyout index.
The value, representing the percentage of projected benefit obligations that a corporate DB plan should expect to pay as a premium, is the result of new research incorporated into the index, which Mercer originally introduced in 2013.
The research revealed changes to market conditions, including that the number of insurers competing in the market has more than doubled since 2012, and that insurers have "evolved their mortality underwriting techniques to better assess mortality risk at the individual participant level," contributed to lower pricing, according to a news release Thursday.
"Over the past several years, pension plan sponsors have shown a strong appetite for purchasing buyout annuities to reduce their liabilities, with transaction volumes growing more than 700% since 2013. As the COVID-19 pandemic has led many organizations to prioritize cost savings during this time of economic instability, we are confident that this trend will continue into the future," said Jay Dinunzio, principal in Mercer's U.S. financial strategy group, in the news release.
The index also estimates the long-term costs for U.S. corporations to maintain their pension liabilities is 105.2% of PBO. It reflects "costs not included in accounting liabilities such as PBGC premiums, investment management and administration fees, and the risk associated with fixed income defaults and downgrades," according to the news release.
Additional information on the U.S. pension buyout index is available on the Mercer website.
