Dietrich index records decline in pension liability settlement costs

To arrive at a value, the report notes, the index considers three underlying financial ratios:

1. The funded status level of annuitizing accrued pension obligations (50 percent index weight);
2. Current and historical annuity rates (30percent index weight);
3. Annuity rates versus Treasury and corporate bond rates (20 percent index weight).

The report attributes the increase to an “improvement in average pension fund levels,” which reached 74.5 percent; and to a rise to 2.54 percent of the annuity discount rate proxy embedded within the index.

 “Interest in efficiently settling pension liabilities is a growing trend for corporate pension plan sponsors,” said Jay Dinunzio, a senior consultant at Dietrich & Associates. “Many large organizations are taking settlement action despite the low interest rate environment to begin the process of streamlining their pension program and to reduce organizational exposure to pension risks which are not core to their business operations.”