Pension Risk Transfer Attractiveness Increases

Improving pension funding levels and expanding spreads of corporate bonds against Treasuries drove the 1.42 point gain. The index’s current annuity discount rate proxy of 3.21% dropped 2 basis points in the same time period.

Geoff Dietrich, vice president of Dietrich & Associates, said long-term interest rates have slipped some since the Federal Reserve readjusted the outlook for its quantitative easing policy, but the cost to insure pension obligations through annuitization has not suffered as a result.  

“This shows us that interest rates are not the sole factor driving the price of PRT,” Dietrich said.  “This market is dynamic.  There are too many factors involved and the Index is proof of that.”

Dietrich said dismissing PRT due to interest rates alone is “not sound decisionmaking.”

The Dietrich Pension Risk Transfer Index provides a dynamically constructed, monthly directional data-point regarding the market conditions that affect PRT 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 Dietrich Pension Risk Transfer Index can be found here.