The Mercer U.S. Pension Buyout Index for March showed retiree buyout costs accounted for 110 percent of the accounting liability.
According to Mercer, the economic cost includes an allowance for future retention costs (administrative, PBGC premiums and asset-related costs) as well as a reserve for future improvements in mortality. These additional costs and reserves are not included in the accounting liabilities published by plan sponsors, but do represent future costs that should be reflected in any risk transfer comparisons and evaluations.
The Index is compiled using data from a number of leading U.S. life insurance companies, including American General, MetLife, Principal, Pacific Life, Prudential and United of Omaha. It 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 also shows the approximate cost of retaining the retiree liabilities on a plan sponsors’ balance sheet.
The cost of buying annuities for retirees stayed flat in 2013 at about 110 percent, an increase from the 108 percent accounting liability seen at the end of 2012.
Strong equity returns in recent months have led to an increase in the funded status for many plans over the first quarter of 2013. The aggregate funded status of pension plans sponsored by S&P 1500 companies increased to an estimated 82 percent as of March 31, their highest level in over a year, Mercer found.