Pension Risk Transfer Index Slips

The Dietrich Pension Risk Transfer Index, which tracks the relative attractiveness of annuitizing pension liabilities, slipped to 92.66 as of August 1.

The modest 0.88-point loss is a result of narrowing credit spreads and slightly increased pension funding levels, according to Dietrich Associates. The index’s current annuity discount rate proxy of 3.05% is down 2 basis points from a month ago. 

“We anticipated a market correction from the reaction to Chairman Bernanke’s update on the economy, primarily his prediction as to the future of the Fed’s quantitative easing initiative, in June,” said Geoff Dietrich, vice president of Dietrich & Associates. While long-term interest rates are holding steady and equity markets continue to boost pension plan funding levels, the correction came in the form of narrowing credit spreads. “There is a science to valuing long-term liabilities such as pension obligations, and there is an art to the timing of a pension risk transfer; the intent of our index is to marry the two dynamics and help plan sponsors eliminate the guessing.”

The Dietrich Pension Risk Transfer 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 settlement cost environment. The index was designed to provide pension stakeholders a thoughtful mechanism for monitoring settlement market conditions and to support effective plan governance and decisionmaking.

The index can be found at