February Brought Drop in Pension Buyout Appeal

The Dietrich Pension Risk Transfer Index fell nearly three points in February to 95.33.

The index, which tracks the relative attractiveness of annuitizing pension liabilities, also saw the annuity discount rate proxy of 3.18% fall 19 basis points from the previous month. In addition, plan funding levels dropped 4% on average in January, giving back nearly 25% of 2013 gains as a result of underperforming assets and declining interest rates.

“Despite these setbacks, the index remains within the ‘execute’ corridor, while strongly indicating the need to understand and monitor conditions more closely,” says Geoff Dietrich, vice president of Dietrich & Associates. “The index is a great metric for tracking settlement costs, but when you dig deeper you’ll see greater swings from week to week within our market. Plan sponsors who are terminating their plan, or considering a liability settlement, would benefit from an awareness of opportunistic windows as they open.”

The index provides a dynamically constructed, monthly directional data-point regarding the market conditions that affect settlement costs. Higher index values indicate a reduction in the theoretical settlement cost of a pension plan. The index was designed to provide pension stakeholders a mechanism for monitoring settlement market conditions, and to support effective plan governance and decisionmaking.

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