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.