ASOP 51 requires actuaries performing valuations for defined benefit plans to identify risks that, in the actuary’s professional judgment, may reasonably be anticipated to significantly affect the plan’s future financial condition, and Eric Keener, with Aon, says this may help plan sponsors avoid adverse actions.
Entities that monitor defined benefit (DB) plan funded status noted that the decline could have been worse had interest rates not increased and pushed down plans’ liabilities.
An article by Brian Donohue, partner at October Three Consulting, discusses how a funding surplus can pose a challenge to DB plan sponsors’ risk transfer or plan termination actions and what they can do to mitigate this problem.
Some disclosure requirements are removed from Subtopic 715-20, Compensation—Retirement Benefits—Defined Benefit Plans—General, and some requirements are added.
The PBGC is proposing in a renewal request that all reportable events filings include controlled group information, company financial statements, and the plan’s actuarial valuation report.
If interest rates continue to rise, this may have a negative impact on equity valuations; consequently, according to Goldman Sachs research, the present period may represent a limited window for optimal pension risk transfer actions.
A table on the PBGC’s website shows that the flat-rate premium for single-employer plans has grown from $31 in 2007 to $80 in 2019, and the variable-rate premium has grown from $9 to $43.
Some firms that track pension funded status point out that plan sponsors should prepare for changes in the future as a market correction is expected and funding relief fades and higher plan sponsor contributions will be required.
Corporate plans have significantly increased their U.S. fixed income allocation, while public plans have used the funds from U.S. equity and placed them into alternatives, Investment Metrics finds.
“While PRT can be a highly effective tactic for plan sponsors to reduce risk and shift liabilities off their books,” MassMutual says, “it’s possible to increase pension costs and risks if a PRT is not executed with long-term goals in mind.”
The aggregate funded ratio is up 6.1 percentage points year to date, according to Wilshire Consulting.
Among other things, a federal appellate court rejected a district court’s decision that the PBGC standards for establishing successor liability are outlined in the Multiemployer Pension Plan Amendment Act of 1980 (MPPAA) and do not apply to single-employer plans.
“Tax reform has allowed plan sponsors to take advantage of a higher deduction. Doing so may mitigate the need for higher contributions in the future,” says Alexa Nerdrum, managing director, retirement at Willis Towers Watson.
Vanguard research explains how CITs and mutual funds are just as beneficial.
DB plan funded status reached a five-year high in July.
Institutional assets tracked by Wilshire Trust Universe Comparison Service (Wilshire TUCS) posted an all-plan median return of 0.88% for second quarter.
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.