According to Dietrich & Associates, the net unchanged position was driven by modestly lower annuity discount rates, which were offset by modestly higher pension funding levels. The current annuity discount rate proxy embedded within the index is at 3.08%.
“With the Federal Reserve intent on trying to keep interest rates low until at least 2014, the short-term outlook for pension liabilities being reduced by rising interest rates seems unlikely,” said Jay Dinunzio, senior consultant at Dietrich & Associates. “Asset allocation will likely be a key focus for many pension sponsors as they seek to opportunistically increase fixed income exposure. The institutional insurance marketplace has a variety of contract structures available, which may allow risk focused small and mid-sized plan sponsors to access a customized LDI solution where the fixed income investment is tailored to the specific plan liability cash flows.”
The Dietrich Pension Risk Transfer Index can be found at https://www.dietrichassociates.com.