The costs for a company to hold onto its pension liabilities vs. shifting them to annuities were nearly identical in October, suggesting the time is right for employers to unload their defined benefit pension plans, according to the latest Mercer Pension Buyout Index.
The index found that the cost of buying out a pension plan by purchasing annuities had fallen to 108.3 percent of the value of liabilities. The cost of keeping the plan was 108.2 percent of the value. Rising interest rates throughout the year have reduced future unfunded liabilities while rising stock prices have raised pension fund assets, causing the costs to converge.
"The retiree buyout cost relative to the economic cost of retaining the liabilities decreased significantly during October to its smallest margin during 2013 at approximately 10 basis points," Mercer said. "The current low margin when comparing buyout costs to the cost of retaining the liabilities is potentially attractive for sponsors who are prepared to act on the opportunity."