Competitive PRT Cost Falls Below ABO: Decision Framework for DB Plan Sponsors in 2026

Single-employer defined benefit sponsors can now buy out pension liabilities below their GAAP balance sheet value. Milliman's Pension Buyout Index for May 31, 2026 puts competitive annuity pricing at 99.7% of accumulated benefit obligation, the first sub-100% print in three years, while the Milliman 100 funded ratio reached 109.6%, its highest since July 2001. The two readings together change the accounting sign on a termination decision.

Key Takeaways

• 99.7% of ABO is below the minimum GAAP accounting liability for frozen, terminated, and active plans alike, so a settlement that clears the corridor books a gain rather than a loss.
• The Milliman 100 funded ratio of 109.6% is the highest since the 109.9% reading at the end of July 2001, and it came almost entirely from a 13.15% twelve-month asset return.
• The competitive-to-average spread is 2.8 percentage points, 99.7% against 102.5% across nine insurers, worth $11.2 million on a $400 million frozen plan.
• A 50-basis-point cut raises the ABO by roughly 6% to 7% on a 12 to 14 year duration, but insurer new-money yields reprice faster than the long AA curve, which pushes the ratio back toward 100%.
• PRT buyout volume fell 35% in 2025 to $31.3 billion from $51.8 billion, with a $4.1 billion second quarter, so the demand response to pricing is not immediate.

Below the Accounting Floor

The accumulated benefit obligation is the present value of benefits already accrued, discounted at current high-quality corporate bond yields, with no allowance for future salary growth. For frozen or terminated plans the ABO and PBO converge. For plans with active accruals the PBO exceeds the ABO by the present value of projected salary-driven growth. Pricing at 99.7% of ABO therefore sits below the minimum accounting liability in every plan category.

The consequence runs through ASC 715. When a plan settles an obligation below its carrying accounting value, the difference is recognized immediately as a settlement gain, provided the settlement amount clears the corridor under the standard. For frozen or retiree-only populations the relevant floor is the ABO rather than the PBO.

The arithmetic is small per dollar and decisive in sign. A $300 million frozen plan with a $280 million ABO buys out at $279.2 million, booking a $0.8 million settlement gain before any recognition of surplus held above that liability. Every PRT completed while pricing ran 101% to 103% of ABO over the prior three years required the sponsor to absorb a settlement loss instead.

What the Surplus and the 2.8 Points Buy

The Milliman 100 ended May 31, 2026 with $1.324 trillion in assets against $1.208 trillion in projected benefit obligation, a $116 billion surplus. Plans returned 2.22% in May alone, adding $22 billion, while the FTSE Above Median AA discount rate edged down 4 basis points to 5.62%. Over twelve months the funded ratio climbed 5.4 percentage points from 104.2%, funded status improved $65 billion, and assets returned 13.15% while discount rates moved only 9 basis points. The improvement was asset-side almost entirely.

That surplus does specific work in a termination. It is the cushion that absorbs the one-time costs of winding the plan up, actuarial and legal fees, PBGC filing, participant notice administration, without drawing on assets earmarked for benefits, and it is what makes the residual reversion question under IRC Section 4980 or the SECURE 2.0 replacement-plan route worth structuring at all.

The pricing side carries its own measurable value. Milliman Pension Buyout Index co-author Jake Pringle said of the May data: "The competitive MPBI fell below 100%, while both indices reached three-year lows, all of which is great news for plan sponsors." The competitive price is 99.7% of ABO against a 102.5% average across the nine insurers tracked, a 2.8-point spread that quantifies what a structured multi-insurer process is worth against a bilateral negotiation.

That spread has compressed from 3.3 points in April, when competitive pricing stood at 100.1% and the average at 103.4%. Tightening is what should happen as the index crosses par, because carriers are hedging off the same yield curve at similar cost. On a $400 million frozen plan the remaining 2.8% is still $11.2 million, against data remediation, benefit form analysis, and insurer prequalification that rarely approach $1 million on a mid-size transaction.

The Window and the Decision Run on Different Clocks

The administrative path to a full termination is 12 to 18 months: an IRS determination letter, benefit calculations audited to participant level, PBGC reporting, and ERISA Section 204(g) participant notices. A sponsor with a signed group annuity contract captures the May 2026 price whatever rates do next. A sponsor starting the prerequisites now does not.

Rate cuts move the two sides of the ratio in the same direction but not at the same speed. For a frozen plan of 12 to 14 year duration, a 50-basis-point decline in the AA discount rate raises the ABO by roughly 6% to 7%, which mechanically lowers the cost-to-ABO ratio. Insurer pricing offsets it, because lower available asset yields mean charging more for the same guaranteed payout stream, and new-money yields reprice faster than the long AA curve in the first three to six months after a cut.

A cut in the second half of 2026 could therefore push the ratio back toward or above 100% before a transaction started today reaches close.

Year	US Single-Premium PRT Volume	Source
2024	$51.8B (buyouts $48.1B, buy-ins $3.7B; 794 contracts)	LIMRA, 2025
2025	$31.3B buyouts (down 35%); buy-ins surged 372% YoY	LIMRA, 2026
2025 Q2	$4.1B (down 64% from Q1; litigation and tariff uncertainty)	LIMRA, 2025
2025 Q4	$28.0B (up 132% from Q3; year-end acceleration)	LIMRA, 2026

The 2025 volume record shows sponsors do not move at the speed of the index. Buyouts fell 35% to $31.3 billion from $51.8 billion, with a second quarter of $4.1 billion, down 64% sequentially, as litigation risk around investment manager selection and tariff-driven volatility raised CFO caution. The fourth quarter recovered to $28 billion, a 132% jump, on deferred transactions completing before year-end. Buy-ins surged 372% year over year, which is the tell: sponsors defeased the liability without settling it, keeping it on balance sheet and forgoing the gain.

Deferral has a running cost that needs no market assumption. The 2026 flat-rate PBGC premium is $111 per participant, up from $106 in 2025, $86 in 2021, and $35 in 2012, with a variable-rate component of $52 per $1,000 of unfunded vested benefits on top. A 2,000-participant plan pays $222,000 a year regardless of funded status, roughly $1.1 million over five years at current rates, on a premium that has tripled since 2012 with no statutory ceiling.