The estimated buyout cost for retirees in a work pension plan was 109 percent of the accounting liability in April, according to the Mercer US Pension Buyout Index.
This compares to an estimated long-term economic cost of retaining the plan of 108.5 percent of the accounting liability.
This cost includes an allowance for future retention costs, like 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, according to Mercer.
Strong equity returns have led to an increase in funded status for many plans during the first four months of 2013. The aggregate funded status of pension plans sponsored by S&P 1500 companies increased to an estimated 80 percent as of April 30, 2013, up from 74 percent at the end of 2012.
The Index 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. Annuity pricing data from a number of U.S. life insurance companies are used to compile the index, including American General, Massachusetts Mutual Life Insurance Company, MetLife, Principal, Pacific Life, Prudential and United of Omaha.