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Pension Risk Transfer Attractiveness Unchanged, Despite Higher Pension Funding Levels

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A key benchmark that gauges the relative attractiveness of annuitizing pension liabilities has remained nearly unchanged since January, according to a press statement from Dietrich & Associates.

Dietrich & Associates, Inc., a Philadelphia-based provider of institutional annuity brokerage and consulting services, has disclosed that The Dietrich Pension Risk Transfer Index was nearly unchanged from the prior month’s level. The index as of February 1 was 86.35, as compared to 86.65 at the same time in January.

The net unchanged position, the company says, was driven by “modestly lower annuity discount rates, which were offset by modestly higher pension funding levels.” The current annuity discount rate proxy embedded within the index is at 3.08%.

“With the Federal Reserve intent on trying to keep interest rates low until at least 2014, the short term outlook for pension liabilities being reduced by rising interest rates seems unlikely,” says Jay Dinunzio, a senior consultant at Dietrich & Associates. “Asset allocation will likely be a key focus for many pension sponsors as they seek to opportunistically increase fixed income exposure. 

“The institutional insurance marketplace has a variety of contract structures available [that] may allow risk-focused small and mid-sized plan sponsors to access a customized LDI solution where the fixed income investment is tailored to the specific plan liability cash flows,” he adds.

The Dietrich Pension Risk Transfer Index can be found here.