Filed Under:Annuities, Variable

Dietrich index records decline in pension liability settlement costs

Photo credit: Dream Designs
Photo credit: Dream Designs

An index that tracks the relative attractiveness of annuitizing pension liabilities inched up in September, according to a new report.

Dietrich & Associates Inc., a Plymouth Meeting, Pa.-based provider of institutional annuity brokerage and consulting services, published this finding in the latest release of its Dietrich Pension Risk Transfer Index. The index provides a monthly benchmark regarding the market conditions that affect settlement costs, higher index values indicating a reduction in settlement costs. 

On Oct. 1, the index stood at 81.99, up from 81.33 at the same point in September. 

To arrive at a value, the report notes, the index considers three underlying financial ratios:

  1. The funded status level of annuitizing accrued pension obligations (50 percent index weight);
  2. Current and historical annuity rates (30percent index weight);
  3. Annuity rates versus Treasury and corporate bond rates (20 percent index weight).

The report attributes the increase to an “improvement in average pension fund levels," which reached 74.5 percent; and to a rise to 2.54 percent of the annuity discount rate proxy embedded within the index.

 “Interest in efficiently settling pension liabilities is a growing trend for corporate pension plan sponsors,” said Jay Dinunzio, a senior consultant at Dietrich & Associates. “Many large organizations are taking settlement action despite the low interest rate environment to begin the process of streamlining their pension program and to reduce organizational exposure to pension risks which are not core to their business operations.”  

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