Annuitizing Pension Liabilities Grows More Attractive

The index, which tracks the relative attractiveness of annuitizing pension liabilities, was at 98.32 as of January 1. The index’s current annuity discount rate proxy of 3.37% increased 11 basis points from December 2013.

The continued rally of interest rates and equity markets led plan funding levels to five-year highs, according to Geoff Dietrich, vice president of Dietrich & Associates. In addition, pension annuitization costs are down an average of 10% from the beginning of 2013.

“The index continues to move further into the ‘execute’ corridor with retiree liability settlements receiving the most favorable treatment from a risk transfer/cost-benefit standpoint,” says Dietrich. He adds that a faster recovery in short duration discount rates and narrowing spreads on long duration provide excellent opportunities for pension plan sponsors considering retiree settlements as a de-risking strategy.

More information about the index can be found here. Additional commentary can found on YouTube.