The Mercer US Pension Buyout Index (the “Index”) is designed to track the relationship between the accounting liability for retirees of a hypothetical defined benefit pension plan and two cost measures: the estimated cost of transferring the pension liabilities to an insurance company (i.e., a buyout) and the approximate total economic cost of retaining the pension obligations on the balance sheet. The difference between these measures represents the potential cost savings that plan sponsors can achieve through a retiree buyout.
To discuss your plan’s unique circumstances, you can contact the Mercer team at AnnuityMailbox@mercer.com.
Charts are as of September 30, 2022, and are shown for illustrative purposes only. There is no guarantee that this objective will be achieved.
Published quarterly, the Index allows plan sponsors to see at a glance the relative cost of a buyout by an insurer of retiree liabilities of a defined benefit plan, and how that cost changes over time. It is based on a hypothetical retiree population with duration of 9 years and accounting liability of $100 million, using the Mercer Yield Curve to value the accounting liability. In addition, the Index shows the approximate long-term economic cost of retaining the retiree liabilities on a plan sponsor’s balance sheet. This economic cost includes an allowance for future retention costs (administrative, PBGC premiums and investment expenses). These additional costs are not included in the accounting liabilities held by plan sponsors, but do represent future costs that should be reflected in any risk transfer comparison and evaluation. These costs will vary depending on the specifics of each plan. Based on this evaluation, sponsors can compare the approximate current cost of risk transfer through an annuity purchase with the total cost of retaining obligations on the balance sheet. The Index also illustrates the variability of the buyout cost compared to the balance sheet liability over time. The ability to frequently monitor insurer pricing against pre-determined thresholds, and to be prepared for nimble execution, will help capitalize on varying market and insurer conditions.
Annuity pricing data from a number of leading US life insurance companies are used to compile the Index. These insurers include American General Life Insurance Co., Athene Annuity & Life Co., American United Life Insurance Company, Massachusetts Mutual Life Insurance Co. (MassMutual), Metropolitan Tower Life Insurance Co., Minnesota Life Insurance Co., Principal Life Insurance Co., Pacific Life Insurance Co., and Prudential Insurance Co. of America. (Mercer is not associated with any of the aforementioned insurers.) On a given quarter the Index may be compiled from pricing data from some or all of these insurers. Actual annuity pricing can vary significantly from these sample prices.
|Default risk cost||0.30%|
|Asset management costs||0.10%|
|Per participant admin||$30.00|
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For the current value of the Mercer US Pension Buyout Index and full information about the Index, including Methodology for preparation and Important Notices, please visit our website at:
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