2023 IRS Limits Forecast - July
This is an update to the Milliman 2023 IRS limits forecast based on new data from the U.S. Bureau of Labor Statistics.
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: first a competitive rate that looks at only the most competitive insurers' rates from each month, and second a straight average of the insurers' rates.
These metrics demonstrate two important concepts. First, the competitive bidding process is estimated to save plan sponsors on average around 3.3% as of November 30. Second, retirees can be annuitized for an estimated 99.9% of accounting liabilities (accumulated benefit obligation).
During November 2021, average accounting discount rates were essentially level, increasing by a single basis point, while competitive annuity purchase rates decreased by 5 basis points (bps). This caused the estimated competitive retiree buyout cost as a percentage of accounting liability to increase from 99.4% to 99.9%.
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.