The decrease in the index was driven by lower pension funding levels, coupled with a 14 basis point reduction in annuity discount rate spreads. The annuity discount rate proxy embedded within the index dipped to 2.50%. The Index tracks the relative attractiveness of annuitizing pension liabilities.
Despite the lower appeal in October, Verizon announced a settlement of pension obligations through Prudential (see “Verizon Signs Partial Pension Buyout Deal”).
Jay Dinunzio, senior consultant at Dietrich & Associates, said, “This year has been an absolute paradox in the pension settlement marketplace. While interest rates continue to move lower, driving up settlement costs, plan sponsors are accelerating execution of pension settlement decisions and accepting the trade-off of higher costs in return for the complete elimination of pension obligations. Corporate pension sponsors are becoming increasingly aware of the real economic costs of pensions and actively considering how and when to recognize those costs through a combination of purchased annuities and voluntary lump sum offers.”
The Dietrich Pension Risk Transfer Index can be found at https://www.dietrichassociates.com.