Milliman, Inc., a premier global consulting and actuarial firm, today announced the latest results of its Milliman Pension Buyout Index (MPBI). As the pension risk transfer (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.

“Retiree buyout costs open 2024 at their lowest level in almost six months–despite another sizable drop in accounting discount rates”

During December, the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process decreased from 101.8% of a plan’s accounting liabilities (accumulated benefit obligation, or ABO) to 100.5% of those liabilities. That means the estimated retiree PRT cost is now 100.5% of a plan’s ABO. During the same time period, the average annuity purchase cost across all insurers in our index also decreased, from 103.9% to 103.1%. The competitive bidding process is estimated to save plan sponsors about 2.6% of PRT costs as of December.

“Retiree buyout costs open 2024 at their lowest level in almost six months–despite another sizable drop in accounting discount rates,” said Jake Pringle, a Milliman principal and co-author of the MPBI. “That, combined with the reset in insurer capacity as 2024 gets underway is likely welcome news for plan sponsors looking at PRT projects in the new year.”

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. Individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape.

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