The BCG Pension Insider
March 2022 – Volume 125, Edition 1
PBGC Licenses Annuity Buyout Pricing Data from BCG to Support Monitoring of Group Annuity Pricing for US Defined Benefit Pension Plans
BCG data to support PBGC liability measurements that are intended to replicate pricing in the group annuity market
BRAINTREE, MA, March 22, 2022 — BCG Pension Risk Consultants I BCG Penbridge (“BCG”) announced today that the Pension Benefit Guaranty Corporation (“PBGC”) has agreed to license annuity buyout pricing data from BCG, which became effective January 1, 2022, to support PBGC liability measurements that are intended to replicate pricing in the U.S. group annuity market.
The BCG annuity buyout pricing data is comprised of summary statistics (mean and standard deviation) of annuity pricing rates that are collected via a monthly BCG survey of participating insurance providers. The data is provided for predetermined case sizes and durations of defined benefit pension plan annuity buyouts. The data is used to estimate the premium that an insurance company would charge for a buyout of a defined benefit plan.
In addition to licensing the annuity buyout pricing data to third parties, BCG uses the data that it collects from participating insurers to maintain The BCG PRT Index, which was established in 2011 and is the longest standing pension buyout index in the United States. The Index provides easy comparisons of annuity buyout pricing to various pension liability measures and can also be customized to a specific defined benefit plan for ongoing buyout price monitoring.
“We are very pleased that PBGC has decided to license BCG’s annuity buyout pricing data to support its oversight of U.S. defined benefit pension plans,” said Steve Keating, Managing Director of BCG. “This comes at a time when the group annuity pension risk transfer market has seen phenomenal growth in the last decade, record sales volume of $38.1 billion in 2021, and key market indicators are pointing to continued growth in the years to come.”
In total, there are currently 18 insurers active in the U.S. pension risk transfer annuity buyout market, with 10 new entrants since 2014 that remain in the market. Of the 18 currently active insurers, 13 currently participate in BCG’s monthly survey as follows: AIG, Athene, Fidelity & Guaranty, Legal & General, MassMutual, MetLife, Mutual of Omaha, OneAmerica, Pacific Life, Principal, Prudential, Securian Financial and Western & Southern.
PBGC protects the retirement security of over 33 million American workers, retirees, and beneficiaries in both single-employer and multiemployer private sector pension plans. The agency’s two insurance programs are legally separate and operationally and financially independent. PBGC is directly responsible for the benefits of more than 1.5 million participants and beneficiaries in failed pension plans.
About BCG Pension Risk Consultants | BCG Penbridge
BCG Pension Risk Consultants I BCG Penbridge (“BCG”) specializes in assisting defined benefit plan sponsors with managing the costs and risks associated with their pension plans. Since 1983, BCG has successfully helped over 2,500 organizations achieve their pension de-risking goals. Our clients range from publicly-traded companies, to privately held firms, and include healthcare, banks and not-for-profit organizations. BCG helps clients with the full range of pension de-risking strategies from liability driven investing approaches to partial or full pension risk transfer, including navigating the complex and lengthy process of plan termination. BCG frequently works in collaboration with financial advisors, consulting actuaries, institutional investment consultants, asset managers and law firms. BCG is headquartered in Braintree, MA with satellite offices across the US. Please visit our website at: www.bcgpension.com.
BCG Media Contact Information:
Cathy Loos, Loos & Co. Communications
Phone: (347) 334-4135
BCG Annuity Buyout Pricing Data – What Is It and How Is It Used?
At BCG Pension Risk Consultants | BCG Penbridge (“BCG”) we are often asked, ‘how are insurers pricing annuities in the pension risk transfer market?’ Fortunately, we always have an accurate, up-to-date answer to this question.
For over a decade, the insurers that participate in the U.S. pension risk transfer (“PRT”) market have been participating in the monthly BCG Annuity Buyout Pricing Survey. As the longest running survey of its kind in the United States¹, BCG has maintained a birds-eye view of annuity buyout pricing across all market environments as well as the changes in participating insurers in the PRT market. Combined with BCG’s long track record of successful annuity placements (2,500+ completed PRT annuity transactions since firm inception in 1983; 454 transactions for the 10-year period ending 12/31/21²), there is nobody better positioned to advise on PRT annuity pricing than the team at BCG.
How well does the BCG survey predict annuity buyout prices? In 2021, for BCG’s completed PRT annuity transactions (n=38), the average differential between derived pricing rates from BCG’s transactions and BCG’s average survey rates was three basis points! This indicates that the final average bid price is less than 0.5% below what the average BCG survey buyout pricing rate would suggest. It doesn’t get much better than this. Prior years also yielded similar results indicating BCG’s survey rates, together with BCG’s expertise, are an excellent predictor of PRT annuity pricing.
For more information about PRT annuity pricing or inquiries regarding BCG’s annuity buyout pricing data licensing arrangements, please contact Steve Keating at firstname.lastname@example.org.
- 1 The inception date of the BCG Annuity Buyout Pricing Survey was January 1, 2011.
- 2 BCG’s 454 PRT annuity transactions equates to a 12% market share in the U.S. for the 10-year period ending December 31, 2021. Total number of U.S. PRT annuity transactions was 3,710 over this same time period.
ANNUITY PURCHASE RATES
Sample Interest Rates for a Pension Annuity Buyout
(Assumes no lump sums, disability, or unusual provisions)
Retirees (duration of 7) – 2.45%
Term Vesteds (duration of 10) – 2.60%
Actives (duration of 15) – 2.62%
Annuity Purchase Rates as of March 1, 2022