Newsdash Insight on Plan Design & Investment Strategy from PLANSPONSOR
March 3rd, 2015
Editor’s Note
PLANSPONSOR is pleased to bring you a special edition of NewsDash, sponsored by MetLife, focused on defined benefit plans.
Pension De-Risking
Pension Pulse
Nearly one-third (29%) of defined benefit (DB) plan sponsors are likely to consider a pension risk transfer option for their plans in the next two years, according to a MetLife Pension Risk Transfer Poll of 228 DB plan sponsors.  Of those considering a pension transfer option, 73% would opt for a buy-out while 15% would select a buy-in.Read more >
New Mortality Tables Lower Pension Buyout Cost: The Mercer U.S. Pension Buyout Index shows the average pension buyout cost decreased significantly during December. In December 2014, the average cost of purchasing annuities from an insurer to cover pension liabilities decreased from 109.0% to 105.3% of the accounting liability. The buyout index reflects that many plan sponsors are using a new mortality assumption to measure the balance sheet value of their pension obligations, in response to the Society of Actuaries’ publication of the RP-2014 mortality table and MP-2014 mortality improvement scale last October.Read more >
Sponsors Active on Pension Risk and DC Cost Cutting: A new Aon Hewitt survey shows there are many reasons pension plan sponsors look to address risk in their pension plan offerings, but reducing Pension Benefit Guaranty Corporation (PBGC) premiums stands out as a common target. Nearly one in five pension plan sponsors (19%) polled by Aon Hewitt plans to increase cash contributions this year to reduce future PBGC premiums assessed against unfunded liabilities.Read more >
Pension Funding
Updated Mortality Tables Increased Pension Liabilities by $100B
For year-end 2014, Moody’s estimates that pension funding levels for its rated U.S. corporates decreased, by 8 percentage points, to 78% of pension obligations, versus a year earlier. According to Moody’s recent Credit Outlook, in dollar terms, this equates to $201 billion of increased underfunding. The ratings agency says two forces drove this large plunge in 2014: lower discount rates and increased longevity.Read more >
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Corporate Pension Funding Weakened in 2014: The financial health of private pension plans weakened in 2014, with funded ratios falling to levels resembling post-recession lows. A year-end analysis from Towers Watson finds the aggregate pension funded status for Fortune 1000 companies fell to about 80% at the end of 2014, down 9% from a year earlier to give back much of the gains from 2013.Read more >
How Pensions Impact Corporate Financial Distress: A new academic research paper reexamines how pension costs were related to defaults and bankruptcies at high-profile U.S. corporations in the airline, automotive and steel manufacturing industries. The paper, “Corporate Pensions and Financial Distress,” finds greater underfunding of corporate pension plans is not a significant determinant of the outcome of corporate financial distress.Read more >
DB Plan Administration
Mortality Table Updates
On October 27, 2014, the Society of Actuaries (SOA) issued the final version of new mortality tables (RP-2014) for use by defined benefit (DB) pension plans. The tables were also accompanied by new mortality improvement scales (MP-2014), which project the rates at which future mortality is expected to decrease.Read more >
Society of Actuaries Pledges Faster Mortality Scale Updates: More than a decade passed between the two most recent mortality table updates from the Society of Actuaries, but retirement plan fiduciaries should expect the next updated mortality improvement scales long before 2024. In a recent interview with PLANSPONSOR, Dale Hall, managing director of research for the Society of Actuaries (SOA), said one of the Society’s goals is to significantly increase the frequency of mortality data updates.Read more >
Mercer Touts Use of Industry-Specific Mortality Assumptions: The recently released mortality tables from the Society of Actuaries (SOA) need not be used for defined benefit (DB) plan accounting and calculations, and Mercer contends there may be better assumptions for those plan sponsors to use. Jim Berberian, chief architect of the recently completed Mercer Industry Longevity Experience Study (MILES), noted in a recent webcast that auditors say the mortality assumptions a plan uses should be backed up by reliable, accurate data. Mercer believes longevity could vary significantly among industries, said Bruce Cadenhead, chief actuary at Mercer in New York City, during the webcast.Read more >
For Pensions, Active Investing Pays Off: Financial research and benchmarking provider CEM Benchmarking says its most recent report contains enough data to prove active investing is worthwhile for pension funds, if executed efficiently and effectively.Read more >
Regulatory Developments
PBGC Announces 2015 Premium Rates
The Pension Benefit Guaranty Corporation (PBGC) has updated its website with premium rates for 2015. The per-participant flat premium rate for plan years beginning in 2015 is $57 for single-employer plans (up from a 2014 rate of $49) and $13 for multiemployer plans (up from a 2014 rate of $12). For plan years beginning in 2015, the variable-rate premium (VRP) for single-employer plans is $24 per $1,000 of unfunded vested benefits (UVBs), up from a 2014 rate of $14.Read more >
PBGC Announced Benefit Maximum Increase: The Pension Benefit Guaranty Corporation (PBGC) increased the annual maximum guaranteed benefit for a 65-year-old retiree in a single-employer plan to $60,136 for 2015. This is up slightly from the 2014 limit of $59,318, according to the PBGC.Read more >
PBGC to Begin Requesting Pension Risk Transfer Information: The Pension Benefit Guaranty Corporation (PBGC) says it is revising the 2015 premium filing procedures and instructions to require after-the-fact reporting of certain defined benefit plan risk transfers through lump-sum windows and annuity purchases.Read more >
EBSA Issues Final Regs on Annual DB Funding Notices: The Department of Labor’s Employee Benefits Security Administration (EBSA) is set to publish in the Federal Register a final rule to increase pension plan transparency by ensuring that workers receive annual notification of the funded status of their defined benefit pension plans.Read more >
IRS Expands Approval for Changes in DB Plan Funding Method: An Internal Revenue Service announcement provides for automatic approval of a change in funding method with respect to a single-employer defined benefit plan under certain circumstances in which the change in method results from a change in the plan’s enrolled actuary.Read more >
Global
How Did Your Country’s Pensions Fare in 2014?
Pension funds around the world saw asset growth stall in 2014, according to a global survey from consultancy Towers Watson. Measured in dollar terms, the average growth of pension assets in the 16 countries surveyed by Towers Watson was 1.5%, compared with 8.3% in 2013. Global pension assets grew 6.1% in 2014, totalling $36.1 trillion, of which 61% were US pension fund assets.Read more >
U.S. Not as Proactive with Pensions as Other Countries: America’s pension system slipped two places and has fallen to 13th in the world in the Melbourne Mercer Global Pension Index (MMGPI). However, Emily Eaton, a senior consultant in Mercer’s International Consulting Group, in New York City, tells PLANSPONSOR the U.S. fell, in part, because five countries were added to the index this year, and two of those ranked above the U.S.Read more >
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Editorial: Alison Cooke Mintzer alison.mintzer@strategic-i.com

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