Pension Buyout Costs Inch Up, But De-Risking Market Stays Favorable

SEATTLE, WA – February 27, 2026 – The cost for companies to transfer retiree pension obligations to an insurer saw a marginal increase in January, though underlying market conditions remain highly favorable for plan sponsors looking to shed long-term financial risk. According to the latest Milliman Pension Buyout Index (MPBI), the estimated competitive cost for a pension risk transfer (PRT) rose by a mere 10 basis points, moving from 100.3% to 100.4% of a plan’s accounting liabilities.

This minor uptick is notable for its subtlety, marking the ninth consecutive month that competitive buyout costs have remained below the 101% threshold. The data suggests a period of sustained stability in a market that has become a critical tool for corporate finance departments. Milliman’s report also noted that the average annuity purchase cost across all insurers in its index rose similarly, from 103.4% to 103.5%.

“The competitive retiree buyout cost stayed below 101% for the 9th month in a row despite a small increase in January,” said Jake Pringle, a Milliman principal and co-author of the MPBI. “We continue to see favorable results for plan sponsors looking to de-risk through pension risk transfers.”

The report underscores the financial benefit of a well-managed process, estimating that competitive bidding saves plan sponsors approximately 3.1% on PRT costs, a significant saving when dealing with liabilities that can run into the billions.

A Market Shaped by Growth and Volatility

The slight adjustment in January’s costs occurs against the backdrop of a PRT market that has experienced explosive growth over the past decade. The U.S. market saw a record-breaking $48.3 billion in corporate pension buyout sales in 2022, a 42% increase from the prior year, driven by rising interest rates and equity market volatility that made offloading pension plans more attractive.

High-profile transactions, such as AT&T's $8 billion deal in 2023 and IBM's $6 billion transfer in 2024, have become emblematic of a larger trend where companies are moving to permanently remove legacy pension obligations from their balance sheets. This de-risking trend is not unique to the U.S., with the United Kingdom’s market also experiencing a boom as affordability improves and insurer appetite grows.

While the long-term trend is one of robust activity, some recent reports have indicated a potential cooling in the UK, with the value of deals slowing as some companies weigh the benefits of retaining their well-funded schemes. However, the fundamental drivers pushing companies toward PRT remain firmly in place.

The Forces Behind the Price Tag

January’s 0.1% cost increase, while small, is the product of a complex interplay of powerful economic forces. The most significant driver of PRT pricing is interest rates. Higher rates generally improve a pension plan's funded status, making a buyout more affordable. After a series of rate cuts last year, the Federal Reserve held its policy rate steady at 3.5%–3.75% in January, creating a sense of stability. However, with Fed officials divided on the path forward for 2026, uncertainty remains a key factor for plan sponsors timing a transaction.

Intense competition within the insurance industry is another critical element keeping prices favorable for sponsors. The U.S. market features approximately 21 insurers actively competing for PRT business, which helps drive down costs and provides more options for companies. Insurers, in turn, manage their own risk by investing the premiums from these deals across a diversified portfolio of assets, carefully pricing contracts to ensure profitability while absorbing longevity risk—the chance that retirees live longer than projected.

Other factors motivating sponsors include steadily rising premiums charged by the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures private pension plans. Transferring liabilities to an insurer eliminates these ongoing costs, providing a clear financial incentive to act.

The Strategic View from the C-Suite

For corporate leaders and pension fiduciaries, the decision to pursue a PRT is about more than just cost. It is a strategic move to reduce significant financial volatility. Defined benefit pension plans expose a company's balance sheet to fluctuations in interest rates, market performance, and mortality assumptions. A buyout transfers these risks to an insurer, whose core business is managing them.

Beyond risk reduction, a PRT transaction eliminates the immense administrative and compliance burdens associated with maintaining a pension plan, including actuarial valuations, audits, and participant communications. It also “cleans up” the balance sheet, which can make a company more attractive for mergers, acquisitions, or other strategic corporate actions.

Plan sponsors have several options, ranging from a full buyout, which transfers all responsibility to an insurer, to a buy-in, where the plan purchases an annuity contract as a plan asset but retains the liabilities on its books. Some also offer lump-sum windows to former employees to reduce plan headcount. The 3.1% savings from competitive bidding highlighted by Milliman demonstrates that a thorough, well-advised process is essential to maximizing value.

Navigating a Complex Regulatory Path

While the financial and strategic rationale for a PRT is compelling, the execution is fraught with complexity and significant fiduciary responsibility. When a company completes a buyout, retirees' protections shift from the federal safety net of the Employee Retirement Income Security Act (ERISA) and the PBGC to state-level insurance guarantee associations. This transfer carries immense weight, and plan fiduciaries are legally required to act prudently and solely in the interest of participants.

The Department of Labor’s Interpretive Bulletin 95-1 provides the framework for selecting an annuity provider, emphasizing the provider's long-term financial strength. This area has come under increased scrutiny, with SECURE 2.0 legislation passed in 2022 directing the DOL to review this guidance. Furthermore, the PRT market has seen a recent spike in class-action litigation, with lawsuits challenging whether fiduciaries breached their duties in selecting an insurer.

This evolving legal and regulatory landscape means that while the market may offer favorable pricing, the process demands deep expertise. The stability reflected in Milliman's latest index suggests the window of opportunity for sponsors remains open, but navigating it successfully requires careful consideration of the financial, strategic, and fiduciary duties involved in securing retiree benefits for decades to come.