Mercer US pension buyout index

The Mercer1 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.

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Key takeaways

  • At the end of September, a hypothetical retiree buyout could cost 5.1% less than the economic cost of maintaining the liability for this sample plan


1Investment management and advisory services for US clients are provided by Mercer Investments LLC (Mercer Investments), which is one of several, associated legal entities that provide investments services to clients as part of a global investment advisory and investment management business (collectively referred to as “Mercer”).Mercer Investments LLC is registered to do business as “Mercer Investment Advisers LLC” in the following states: Arizona, California, Florida, Illinois, Kentucky, New Jersey, North Carolina, Oklahoma, Pennsylvania, Texas and West Virginia; as “Mercer Investments LLC (Delaware)” in Georgia; as “Mercer Investments LLC of Delaware” in Louisiana; and “Mercer Investments LLC, a limited liability company of Delaware” in Oregon

Commentary on the Mercer US pension buyout index results for Q3 2021

  • The hypothetical cost of purchasing annuities from an insurer was 100.0% of the buyout index accounting liability, while the economic cost of maintaining the plan was 105.1% of the accounting liability. The economic cost reflects increasing future PBGC premiums, administrative costs and investment expenses, which increase the economic cost of maintaining the liability.
  • Transactions can be structured to focus on small benefit retirees to generate even larger potential economic savings. Fixed per person maintenance costs are a larger proportion of their liability. In addition, insurers prefer these participants and often price them more aggressively.
  • A plan sponsor's PBO basis, including accounting standard, mortality assumption, and discount rate methodology may impact the attractiveness of insurer pricing compared to plan's ongoing PBO.

Market update

  • Buyout index liability discount rate increased by 8 basis points over the quarter.
  • Buyout index annuity discount rate increased by 2 basis points, causing the hypothetical annuity price to decrease by slightly less than the accounting liability decrease over the quarter.
  • As spreads widened in the early months of COVID, insurer price dispersion increased as insurers reacted differently to volatility. This led to exceptional deal pricing throughout most of 2020. Pricing has remained very competitive into 2021, illustrating how plan sponsors who are actively monitoring the market can capitalize on opportunities to remove pension liability at a lower cost.


  • Jumbo transactions continue to drive market volume in Q3, led by two transactions around $5 Billion each and expectations are for this trend to continue for the remainder of 2021.  Current estimates for 2021 are that market volume will end the year in excess of $35 Billion with multiple jumbo transactions expected in Q4.


  • Continued high levels of market transaction volume have driven ongoing expansion of the insurer market with two new entrants to the market in 2020 and at least one in 2021.  This additional competition has been a positive for plan sponsors looking to transact


About the Mercer US pension buyout index

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.

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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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