Milliman Pension Buyout Index: March 2020
During February 2020, average accounting discount rates decreased by 19 bps, while annuity purchase rates decreased by 25 bps.
As the Pension Risk Transfer market continues to grow, it has become increasingly important for plan sponsors to monitor the annuity buyout market when considering a plan termination or de-risking strategy. The timing of the annuity buyout can ultimately impact the cost, as well as the plan’s funding and accounting measurements. Other factors also impact annuity buyouts such as size, complexity, and competitive landscape, which should be taken into consideration with the estimated cost illustrated in the MPBI.
Figure 1: Milliman Pension Buyout Index
During January, 2020, average accounting discount rates and annuity purchase rates decreased in parallel by 35 bps each. This caused the estimated retiree buyout cost as a percentage of accounting liability (Accumulated Benefit Obligation) to remain stable, only increasing from 104.2% to 104.3%. When considering these results, please keep the following information in mind:
Milliman Pension Buyout Index: February 2020
The Milliman Pension Buyout Index uses the FTSE Above Median AA Curve and annuity purchase composite interest rates from several insurance companies to estimate the cost, as a percentage of accounting liability, of transferring retiree pension obligations to an insurer.