The estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased to 102.5% of a plan’s accounting liabilities as of July 31, up from 100.3% at the end of June, according to the latest Milliman Pension Buyout Index issued Aug. 20.
Consulting and actuarial firm Milliman also said that during the month of July, the average annuity purchase cost across all insurers in its index also increased, to 104.9% from 103.3%. The competitive bidding process, Milliman noted, is estimated to save plan sponsors about 2.4% of PRT costs as of July 31.
“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 index, in a news release. “Accounting discount rates dropped, but PRT rates dropped substantially more, as plan sponsors watch for the Fed’s (Federal Reserve'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 derisking strategy.
