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.