Financial security: mend the gap

Private pensions perspective

Defined benefit (DB) plan sponsors have seen their challenges grow steadily over the past several years as interest rates have declined, equity market volatility has increased and the cost of plan management has increased. Falling interest rates, low expected returns and lengthening lifespans have converged to create the steady erosion of funded status for many plans. Although the majority of DB plans are now closed to new employees, these plans still present significant obligations for companies to manage, and the future costs of running legacy defined benefit pension plans can be an impediment to executing business strategy.

The Mercer Pension Buyout Index tracks the relationship between the pension obligation held for its retirees in its financial statements and the cost of transferring such obligation to a third party (that is, an insurer).

Published monthly, 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. In addition, the Index shows the approximate long-term economic cost of retaining the retiree liabilities on a plan sponsor’s balance sheet.

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