Pension Funding Index August 2022
The Milliman 100 PFI funded ratio decreases to 104.5% as pension liability increases outpace investment gains.
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. Figure 1 illustrates retiree buyout costs with two different metrics: the red line represents only the most competitive insurers' rates from each month, while the blue line represents a straight average of all insurers' rates in this study.
These metrics demonstrate two important concepts. First, the competitive bidding process is estimated to save plan sponsors on average around 3.9% as of May 31. Second, retirees can be annuitized for an estimated 98.6% of accounting liabilities (accumulated benefit obligation).
During May 2022, average accounting discount rates increased by one basis point (bps), while competitive annuity purchase rates decreased by 11 bps. This caused the estimated competitive retiree buyout cost as a percentage of accounting liability to increase from 97.7% to 98.6%.
When considering these results, please keep the following information in mind:
The Milliman Pension Buyout Index (MPBI) uses the FTSE Above Median AA Curve and annuity purchase composite interest rates from eight insurance companies to estimate the cost, as a percentage of accounting liability, of transferring retiree pension obligations to an insurer. To review previous monthly findings, visit milliman.com/en/periodicals/Milliman-Pension-Buyout-Index.