Interest Rate Update Dec 2011— Volume 4, Issue 12 www.dietrichassociates.com

DietrichAnnuity Guaranteed Income for Life

FROM THE PRESIDENT’S DESK Looking into the Pension Annuity Marketplace Crystal Ball: 2012 and Beyond Recently, Dietrich & Associates attended a Pension Risk Transfer industry event that brought together the leading practitioners of institutional annuity placements within the United States for a collaborative and engaging interaction. The session was highlighted by a panel that contained prominent retirement practice leaders from the largest national consulting firms. The objective of this month’s Update is to highlight some of the issues which were discussed and which may help support your own pension risk management discussions.

Total pension annuity placements for 2012 are informally projected to be $2-3 Billion This would be a 200% - 300% increase over 2010 levels. Additionally, there is a significant probability of a jumbo purchase (more than $1 billion in premium) in 2012. Capacity may affect the cost of annuities The projected increase in annuity placements and the withdrawal of three insurers from the pension annuity market suggests that there will be a strong demand and a potential reduction in the supply for annuity contracts in 2012. The law of supply and demand would indicate an increase in cost for these contracts. Annuitizing Retiree benefits at 105 - 110% of GAAP liability provides good value When considering the elimination of the ongoing expenses associated with the liability (+/- 100 bps/year), annuities make sense. Borrowing to fully fund, and then discharge, the pension plan provides a strategic advantage With the cost of capital at +/- 2% and annuity crediting rates at +/- 3.25%, a natural arbitrage is realized; and through borrowing, a plan sponsor can effectively convert the volatile pension obligation to fixed long term debt on their balance sheet. Plan Sponsors are fundamentally changing their attitudes regarding pension risk We believe insured pension solutions will play a significant role as plan sponsors continue to de-risk investments and ultimately exit and transfer their obligations to the insurance marketplace. As always, we stand ready to help you with more specific and tactical pension annuity related issues. Thank you for your continued readership, happy holidays and best wishes in 2012! Regards,

Kurt Dietrich To view the full December 2011 Pension Risk Transfer Index, click here.

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December 2011

Interest Rate Update

Dietrich & Associates, Inc.

Class of

Participants Rates

All Retiree 3.00%-3.25%

Term-Vested 3.50%-3.75%

Active 3.75%-4.00%

Net Interest Rates Week Of December 12, 2011

Dec 2011 PRT Index Level

87.52

Sept 2010:  PRT Index =82.7

Jan 2009:  PRT Index =121.4

Plan/Monitor      Opportunistic      Settlement Attractive

Annuitization Attractiveness