The index tracks the relative attractiveness of annuitizing pension liabilities, and was designed as a mechanism for pension stakeholders to monitor settlement market conditions. According to Dietrich, higher index values indicate a reduction in the settlement cost environment.
Interest rates fell for the second month in a row, Dietrich reports, despite ongoing gains in pension funding levels. The index’s current annuity discount rate proxy of 2.51% remains on average for the last six months, but continues trending downward over the past 12 months.
“With more and more plan sponsors settling pension liability via annuitization, appetite for risk, understanding cost factors and monitoring market conditions will continue to be top priorities for prepared sponsors considering settlements,” said Geoff Dietrich, vice president of Dietrich & Associates. “Who knows if we have hit bottom or will continue the downward trend for the foreseeable future.”
The Dietrich Pension Risk Transfer Index is at https://www.dietrichassociates.com.