Pension Risk Transfer Costs Rose in May | Chief Investment Officer

Milliman reported that the estimated cost to transfer retiree pension risk to an insurer in a competitive bidding process increased to 100.5% of a plan’s accounting liabilities during May from 98.3% in April, according to its Milliman Pension Buyout Index.

At the same time, the average annuity purchase cost among all insurers in the index increased to 103.3% from 101.9%. The firm said the competitive bidding process save s plan sponsors an estimated 2.7% of pension risk transfer costs as of the end of May.

“With competitive retiree buyout cost back up above 100% for the first time since January, plan sponsors are eyeing what triggered this increase,” Jake Pringle, a Milliman principal and co-author of the MPBI, said in a release. “Insurers may have less enthusiasm for interest rate risk or fewer assets available for transactions as we head into Q3.”

Pringle noted that plan sponsors that are considering pension risk transfers are likely monitoring the Federal Reserve’s interest rate decisions closely. “It will be interesting to see if this upward trend continues through year-end or if buyout costs reverse direction again.”

The MPBI uses the FTSE Above Median AA Curve as well as annuity purchase composite interest rates from nine insurers to estimate the competitive and average costs of a pension risk transfer using annuities.