Annuitizing Pension Liabilities More Attractive

December 15, 2011 ( - The Dietrich Pension Risk Transfer Index, which tracks relative attractiveness of annuitizing pension liabilities, rose two points in November from its prior month’s level of 85.51.

The Index currently sits at 87.52 as of December 1, 2011. The increase was driven mainly by higher annuity discount rates (currently 3.48%) against nearly flat pension funding and interest rate spread levels.  

According to Jay Dinunzio, senior consultant at Dietrich & Associates, “While the current index level is still below the one hundred plus point threshold where annuitization becomes generally more attractive, specific plan sponsor circumstances may provide opportunities for annuities to deliver real value in the current environment.”   

Specific examples of some of these plan sponsor circumstances are as follows: 

  • Moving to terminate the plan,
  • Plan is well funded,
  • Tactical view of prolonged and low equity returns and/or interest rates,
  • Unconcerned with cash and accounting costs of settling liabilities,
  • Committed to reducing pension plan size and ongoing expense,
  • Willing to finance fully funding pension debt, and
  • Plan has large proportion of retiree benefits, creating potentially significant cash flow mismatch issues.

The Dietrich Pension Risk Transfer Index can be found at