DB plan funded status reached a five-year high in July.
Tag: DB plans
Corporate DB plans have experience funded status improvement, and LDI strategies help plan sponsors preserve this; however, investment committees are looking for new asset classes that can provide greater returns at a reasonable level of risk.
As more marketable obligations—such as those for in-pay retirees—are transferred to insurers, residual DB plans will have unusual and idiosyncratic features that make them more difficult to manage, which will drive pension investing to a “hibernation” focus for many, Mercer says.
However, firms that track DB funded status report 2% gains for the quarter and up to 6% for the year.
A newly filed challenge to St. Joseph Health Services of Rhode Island’s retirement plan claims the plan at some point failed to be a church plan, and entities administering or associated with the plan hid this to keep from adhering to funding rules as defined by ERISA.
The complaint alleges that at a certain point, the plan lost its church plan status as defined by ERISA and was required to adhere to ERISA funding rules.
A partner at Ivins, Phillips & Barker discusses why defined benefit plan sponsors should consider accelerating their funding—and how to do so.
“The pattern of improvement paused last month owing to a dip in discount rates, but aggregate funded status remains near a four-year high as the long bull market continues to persist,” says Matt McDaniel, a partner in Mercer’s US Wealth business.
Although increasing pension contributions was not a primary consideration in the decision to lower the corporate tax rate in the Tax Cuts and Jobs Act, it is a positive unintended consequence.
The 6th Circuit noted that Firestone Tire & Rubber Co. v. Bruch, in which an arbitrary-and-capricious standard of review is required by the court if the plan “gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan,” should have been used by the district court.
According to MetLife, the pension risk transfer (PRT) agreement involves pension obligations of $6 billion.
Corporate and health care plans fared the worst, with quarterly returns of -1.14% and -0.71%, respectively.
Firms that track defined benefit (DB) plan funded ratios also noted that slight gains in equity markets improved plans’ funded status during the month.
Wilshire TUCS first quarter returns were weighed down by losses across all major asset classes.
“A primary driver of the improvement in the funding ratio was the increase in global equity values for the 12-month period ending June 30, 2017,” notes Ned McGuire, managing director and a member of the Pension Risk Solutions Group of Wilshire Consulting.
Data provided by LGIMA suggests the average U.S. pension plan’s funding ratio increased a full 2% during the month of April.
A federal appellate court agreed with the Commissioner of Internal Revenue that Pizza Pro Equipment Leasing incorrectly calculated the limitation on the plan’s annual benefit and therefore made non-deductible contributions to the plan.
The quarterly Defined Benefit Market Update and Commentary is designed to support DB plan sponsor clients and potential clients in the ongoing management of their plans and includes data on interest rates, bond and equity markets, and commentary on economic and regulatory matters.
Plan sponsors now have the opportunity to contact the agency for a pre-filing consultation to discuss the filing process and ensure the filing of a distress termination is appropriate given the sponsor’s specific circumstances.