The Mercer US Pension Buyout Index (the “Index”) tracks 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.
To discuss your plan’s unique circumstances, you can contact the Mercer team at AnnuityMailbox@mercer.com.
1 Source: 2016-2018 LIMRA reports and internal Mercer data
2 CFO Research and Mercer have been conducting this biennial defined benefit pension risk survey since 2011. As in past years, this year’s edition drew responses primarily from 155 senior executives including CFOs, CEOs, and finance directors, all based in the U.S. and representing a wide range of industries. Just over half the respondents represent organizations with annual revenue between $500 million and $5 billion.
Published monthly, 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 and accounting liability of $50 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., American United Life Insurance Company, Massachusetts Mutual Life Insurance Co. (MassMutual), Metropolitan 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 month 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|
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: www.mercer.com/US-pension-buyout-index
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