Pension annuitization remains attractive

The relative attractiveness of annuitizing pension liabilities continues on an upward path. According to the Dietrich Pension Risk Transfer Index, the rate rose 4.62 points from June’s value of 88.92 to 93.54 as of July 1, buoyed by rising interest rates and pension funding levels. Further, the index’s current annuity discount rate proxy of 3.07 percent has increased nearly 70 basis points since May.

In a release detailing the latest index results, Geoff Dietrich, vice president of Dietrich & Associates, stated that many plan sponsors have executed pension risk transfers over the past 60 days. Behind the surge is the recent announcement by the Fed that it plans to scale back its bond buying program later this year. Therefore, plan sponsors who have been mulling the cost to exit plan liabilities can foresee a favorable climate to undertake a partial or even full transfer. “Sponsors are taking action. They’re pulling their chips off the table and cashing in,” Dietrich noted in the statement.

The Dietrich Pension Risk Transfer Index analyzes monthly data that impacts settlement costs. If the index values are higher, that would indicate settlement costs are lower.

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