Dietrich Urges DB Plans to Consider De-Risking Actions

The relative attractiveness of annuitizing pension liabilities fell for the second month in a row, according to Dietrich & Associates, Inc.’s Pension Risk Transfer Index.

As of June 1, the index moved to 90.32, down almost two points from May. The annuity discount rate proxy lost a little ground (3%). The index’s change is due in most part to continued erosion in defined benefit (DB) pension plan funding levels as a result of low interest rates.

“Early movers have been the big winners so far in 2014 and I see this continuing to be the case,” says Geoff Dietrich, vice president of Dietrich & Associates, Inc., based in Plymouth Meeting, Pennsylvania. Popular opinion remains that interest rates cannot go any lower, he says, but they continue to disappoint.

In a time of strong equity markets and higher fixed income returns, DB plan liabilities continue to increase, adds Dietrich. The cost of operating a DB plan also continues to increase, not to mention the cost of doing nothing. Dietrich cautions that DB plan sponsors need to be aware of the “liability-centric” de-risking options available and that these options are not one-size-fits-all.

“Passive management is not the answer,” says Dietrich. “In today’s marketplace, there are numerous tools to help sponsors mitigate risk, volatility and expense. Plans should continue to vet and implement these options.”

The Pension Risk Transfer Index was designed to provide pension stakeholders with a mechanism for monitoring settlement market conditions, and to support effective plan governance and decisionmaking.

The index results for May can be found here. A video with additional commentary can be found here.