During May, the estimated cost of transferring the risk of the retiree’s pension to an insurer in a competitive bidding process increased from 98.3% of a plans accounting liabilities (ABO) to 100.5%, according to the premier and global consulting firm, Milliman.
This means that the estimated cost of the retiree PRT is 100.5% of the ABO of a plan.
However, during the same time period, Milliman stated that the average cost of purchasing an annuity among all insurers within the company 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 says that as the PRT market continues to grow, it’s becoming “increasingly important” to monitor the annuity market for plan sponsors considering transferring retiree pension obligations. to an insurer.
“With the competition to buy retiree costs back above 100% for the first time since January, plan sponsors are looking at what caused this increase,” said Jake Pringle, a Milliman principal and co-author of MPBI.
“Insurers may have less appetite 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 to be tight which monitors the Federal Reserve’s interest rate decisions, and it will be interesting to see if this upward trend continues until the end of the year or if purchasing costs reverse direction.
