The increase in the index, which indicates more favorable conditions for annuitizing pension liabilities, was driven by the fact that the index’s current annuity discount rate (2.89%) is more than double the 10- year U.S. Treasury yield (1.43% as of June 1). This increase in annuity value, relative to treasury and corporate bond yields, more than offsets a down tick in interest rates and pension funding levels.
According to Jay Dinunzio, Senior Consultant at Dietrich & Associates: “There have been very few occasions when annuities have provided the sort of deep value they offer at today’s levels when compared to current U.S. Treasury yields. While fixed income has enjoyed a tremendous recent bull market run, plan sponsors may want to consider taking advantage of current rate levels to lock-in some portion of their costs.”
The Dietrich Pension Risk Transfer Index can be found at www.dietrichassociates.com.