As the year draws to a close, pension plan sponsors may want to consider annuitizing their pension liabilities. Throughout 2013, the Dietrich Pension Risk Transfer Index, which analyzes the relative attractiveness of annuitizing pension obligations, has climbed steadily upward, ending at 97.12 as of Dec. 1, slightly up from November’s figure of 97.10.
Meanwhile, the index’s current annuity discount rate proxy rose five basis points to 3.26 percent. In short, the index tracks market conditions that impact settlement costs. A higher index value means settlement costs have been reduced. Consequently, the index’s ascendance indicates the time is right to undertake a pension risk transfer deal by the end of this year and into the next.
Geoff Dietrich, vice president of Dietrich & Associates, which compiles the index, said in a statement that as pension funding levels and interest rates continue to rise in lockstep, plan sponsors are taking action.
“Plan sponsors who actively considered their insured risk transfer options in 2013 are now harvesting their efforts,” Dietrich stated. “The increase in activity is a direct result of educated, risk-adverse sponsors who understand their transfer options and the drivers behind affordability, in connection with active monitoring of market conditions.”