The cost of maintaining a U.S. pension plan is more expensive than transferring liabilities to an insurance company, according to the latest Mercer US Pension Buyout Index.
The cost of purchasing annuities from an insurer as a way to pass off pension liabilities stayed about the same in January, at 108.5 percent of the accounting liability of a defined benefit pension plan. The cost to maintain the plan increased slightly from 108.6 percent to 108.7 percent of the balance sheet liability.
The index tracks the relationship between the accounting liability for retirees of a hypothetical defined benefit plan and two cost measures: the estimated cost of transferring the pension liabilities to an insurance company, or a buyout, and the approximate total economic cost of retaining the obligations on the balance sheet.
The Pension Benefit Guaranty Corporation’s increased its premiums from $49 per participant in 2014 to $64 per participant in 2016, Mercer found. The more than 30 percent increase contributed to the increased cost to plan sponsors of maintaining their defined benefit plan and is a large factor in many plan sponsors’ decisions to transfer liability.