A key measure of the relative attractiveness of annuitizing pension liabilities dipped slightly in August.
The Dietrich Pension Risk Transfer Index, published by Dietrich and Associates, dipped to 92.66 on the first of the month, a 0.88 point loss from its robust 4.62 point jump from June to July.
The minor loss is due to the narrowing of credit spreads coupled with a modest increase in pension funding levels. The index’s current annuity discount proxy rate of 3.05 percent is down two basis points from July.
In a release detailing the latest index results, Geoff Dietrich, vice president of Dietrich & Associates, stated that the market correction was anticipated and was facilitated by Federal Reserve Chairman Ben Bernanke’s update on the economy, mainly his indication that the Fed’s quantitative easing program may taper off in the near future. With long-term interest rates remaining steady and equity markets still boosting pension plan funding levels, Dietrich maintained the market correction came in the form narrowing credit spreads.
“There is a science to valuing long-term liabilities such as pension obligations and there is an art to the timing of a pension risk transfer, the intent of our index is to marry the two dynamics and help plan sponsors eliminate the guessing,” Dietrich said in a statement.