Mercer launches pension benefit buyout pricing index

Mercer L.L.C. is launching a monthly index to give employers that are looking to reduce their pension plan risk up-to-date pricing information on the average premium insurers charge to take over retirees' benefits when employers purchase a group annuity.

The Mercer U.S. Pension Buyout Index, which Mercer compiles through pricing data it receives from major annuity insurers, will enable employers to evaluate the cost of a benefit buyout against the administrative costs, premiums charged by the Pension Benefit Guaranty Corp. and the risks associated with remaining liable for retiree benefits.

“Many plan sponsors we have spoken with are eager for unbiased third-party information on where annuity pricing stands and how the pricing may change over time,” Sean Brennan, a principal with Mercer's financial strategy group in New York, said Tuesday in a statement.

“There are times when it's cheaper to annuitize. But to act, plan sponsors need to understand how real-world pricing can change from month to month,” said Leah Evans, a Mercer principal in New York.

The launch of the index follows two major group annuity purchases last year. In the biggest deal, General Motors Co.'s pension plan paid $25.1 billion to Prudential Insurance Co. of America for a group annuity to replace benefits that salaried employees who retired before Oct. 1, 1997, had received from GM.

In the other transaction,Verizon Communications Inc. purchased a group annuity, also from Prudential, to transfer about $7.5 billion in benefits promised to about 41,000 management participants who retired and began receiving benefits before Jan. 1, 2010.