Defined benefit pension plan sponsors in the U.S. are facing increasing costs when de-risking through annuity buyouts, according to a new report by consulting firm Milliman Inc.
It found the estimated cost to transfer risk to an insurer increased in February to 99.7 per cent of a plan’s total liabilities, up from 99.3 per cent in January.
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During the same time period, the average annuity purchase cost across all insurers also increased to 102.8 per cent from 102.5 per cent, said the report, noting the competitive bidding process saved plan sponsors roughly 3.1 per cent of risk transfer costs as of Feb. 28.
“Even with recent volatility in interest rates and financial markets, retiree buyout costs have remained steady over the last six months and we expect interest in [risk transfer] transactions to remain high moving into the second quarter,” said Jake Pringle, a principal at Milliman and co-author of the report, in a press release.
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