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Pension Risk Transfer Index rises for first time since September. Despite low interest rate environment, risk transfer opportunities exist for sponsors with specific circumstances. The Dietrich™ Pension Risk Transfer Index, which tracks relative attractiveness of annuitizing pension liabilities, rose two points from its prior month’s level of 85.51 and currently sits at 87.52 as of December 1, 2011. The increase was driven mainly by higher annuity discount rates (currently 3.48%) against nearly flat pension funding and interest rate spread levels. According to Jay Dinunzio, Senior Consultant at Dietrich & Associates, “While the current index level is still below the one hundred plus point threshold where annuitization becomes generally more attractive, specific plan sponsor circumstances may provide opportunities for annuities to deliver real value in the current environment”. Specific examples of some of these plan sponsor circumstances are as follows: • Moving to terminate the plan • Plan is well funded • Tactical view of prolonged and low equity returns and/or interest rates • Unconcerned with cash and accounting costs of settling liabilities • Committed to reducing pension plan size and ongoing expense • Willing to finance fully funding pension debt • Plan has large proportion of retiree benefits, creating potentially significant cash flow mismatch issues The Dietrich™ Pension Risk Transfer Index can be found at https://www.dietrichassociates.com
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PENSION RISK TRANSFER INDEX ™
December 1, 2011 PRT Index Level
87.52 120
Plan/Monitor Opportunistic Settlement Attractive
Sept 2010: PRT Index =82.7
Jan 2009: PRT Index =121.4
80 95 105
Annuitization Attractiveness
110.6 121.4
91.5 90.0
70
80
90
100
110
120
130
140
Jan-08 Jan-09 Jan-10 Jan-11
Annual PRT Index PRT Index
What is the Dietrich Pension Risk Transfer (PRT) Index ™ ? The Dietrich Pension Risk Transfer Index ™ has been designed to create a monthly benchmark that tracks the relative attractiveness of annuitizing accrued pension obligations by considering three key underlying financial ratios Funded Status Level (50% Index Weight) Current /Historical Annuity Rates (30% Index Weight) Annuity Rates vs. Treasury and Corporate Bonds (20% Index Weight)
Commentary: Modestly higher annuity rates drove an increase in the index value, against near flat pension funding and interest rate spreads. Current annuity discount rate proxy sits @ 3.48%.
Dietrich & Associates does not certify the information nor does it guarantee the accuracy or completeness of such information. Use of such information is voluntary and should not be relied upon unless an independent review of its accuracy and completeness has been performed. Materials may not be reproduced without the express consent of Dietrich & Associates.
Effective 12/1/2011
78.00
83.00
88.00
93.00
98.00
103.00
108.00
Monthly PRT Index PRT INDEX
