Headlines about "Actuarial - funding of pensions"
Gathered from the web by the editors at BenefitsLink.com.
Actuarial Methods and Public Pension Funding Objectives: An Empirical Examination (PDF)
35 pages. Excerpt: "This paper examines the degree to which certain actuarial methods satisfy public pension plan funding objectives. It compares the funding patterns that result from a conventional actuarial approach used by the majority of public plans with patterns that result from the 'market value of liability' (MVL) approach. The comparison is made by applying these approaches to a modeled public plan based on historical demographic, economic, and investment data over the period from 1978 to 2008. The paper finds that funding under the MVL approach would likely result in rapid and erratic changes to a public plan's normal costs, accrued liabilities, and funded levels, largely due to changes in the MVL discount rate. By contrast, conventional funding results in measures that are more stable and predictable over time. Consequently, the paper concludes that the conventional approach is more effective in meeting the funding objectives of public pension plans." (Society of Actuaries)
Public Pension Shortfall is Worse than You Think
Excerpt: "A new research paper, 'Public Pension Promises: How Big are They and What are They Worth?,' from the University of Chicago looks at nationwide public pension obligations and funding. . . . The bottom line of this paper is that: a) By the most realistic measure, public pensions in America are underfunded by more than $10 trillion. b) Future taxes to pay for the benefits promised but not funded by current political leaders will be very burdensome and will distort the economy. Future generations will curse us for this." (The Reason Foundation)
Public Pension Promises: How Big Are They and What Are They Worth?
Excerpt: "We calculate two present value measures of already-promised state pension liabilities using discount rates that reflect their risk. If benefits have the same priority in default as general obligation debt, aggregate underfunding is $1.21 trillion. If states cannot default on these benefits, underfunding is $3.12 trillion. The first measure is a lower bound on the value of the liability to taxpayers, and is more than the $0.94 trillion in state municipal debt. The second measure is a better benchmark for funding adequacy. We also estimate broader concepts of accrued liabilities that account for projected salary growth and future service." (Social Science Research Network)
Pension Funding Proposals Being Considered
Excerpt: "Comprehensive funding relief for defined benefit pension plans is on the radar screen. A discussion draft was released this week in the House of Representatives, and certain proposals are included in the 401(k) Fair Disclosure Bill that was favorably reported this week by the House Education and Labor Committee." (Deloitte via BenefitsLink.com)
Defined Benefit Funding Relief at Risk Over an Advice Provision
Excerpt: "A House committee yanked a pension bill provision safeguarding existing investment advice arrangements for DC plans -- jeopardizing employer support for a package that also provides critical funding relief for DB plans. At the 11th hour, Democrats on the House Education and Labor Committee deleted the provision that would have made clear the legislation would not pre-empt existing investment advice arrangements that rely on the Department of Labor's SunAmerica advisory opinion or other DOL advice exemptions." (Pensions & Investments)
The Long Road to Retirement Recovery May Be Shorter for Those with Pensions
Excerpt: "For individuals fortunate enough to have access to a pension plan, the news is a bit brighter. Despite the significant losses that pension funds have endured along with all investors, these funds still have enough assets in reserve to pay promised benefits for years to come. Further, pensions have a longer time horizon than individuals to recover losses, a point highlighted in a recent analysis by Standard & Poor's." (National Institute on Retirement Security)
St. Joe Company Annuitizes $93 Million in Plan Liabilities
Excerpt: "St. Joe Co., Jacksonville, Fla., annuitized $93 million of its pension plan liabilities by transferring them along with $101 million of its pension plan assets to Massachusetts Mutual Life Insurance, the real estate development company announced Thursday. The annuitization will raise the plan's funding ratio to 260% from 145%, reducing the company's risk, said William S. McCalmont, St. Joe executive vice president and CFO, in the statement. Once the transaction is completed, the plan is expected to have $73 million in assets and $28 million in liabilities; it had $174 million in assets and $121 million in liabilities as of May 31, the statement said." (Pensions & Investments)
Public Pension Finance Symposium: The Rationale for Traditional Actuarial Models (PDF)
35 pages. Excerpt: "This paper examines the degree to which certain actuarial methods satisfy public pension plan funding objectives. It compares the funding patterns that result from a conventional actuarial approach used by the majority of public plans with patterns that result from the 'market value of liability' (MVL) approach. The comparison is made by applying these approaches to a modeled public plan based on historical demographic, economic, and investment data over the period from 1978 to 2008. The paper finds that funding under the MVL approach would likely result in rapid and erratic changes to a public plan's normal costs, accrued liabilities, and funded levels, largely due to changes in the MVL discount rate. By contrast, conventional funding results in measures that are more stable and predictable over time. Consequently, the paper concludes that the conventional approach is more effective in meeting the funding objectives of public pension plans. The serious instabilities in the MVL measures would most likely lead either to erratic demands on government resources or plan terminations. If the MVL approach were applied, we believe it would ultimately be abandoned as being too unstable for state and local governments." (Society of Actuaries)
Median Cost for Defined Contribution Plans Now Exceeds Cost for Defined Benefit Plans
Excerpt: "In 2008, the median cost as a percentage of revenue for defined contribution plans sponsored by the Standard & Poor's 500 companies has exceeded the median cost for defined benefit plans (.39% versus .38%), for the first time. The median cost for defined contribution plans has remained steady over the last four years (.37% in 2005-2007) while the median cost for defined benefit plans has declined from .51% in 2005, .46% in 2006, and .42% in 2007. According to Mercer, the reason for the decline in defined benefit costs is a reflection of freezing of accruals, closure of plans to new participants, or other cutbacks." (Wolters Kluwer)
An Understanding of the Two-Hat Dilemma Is Essential to All Aspects of Fiduciary Responsibility
Excerpt: "There is an interesting article entitled 'Two-Hat Issues for Trustees' in the June 2009 Benefits & Compensation Digest. Although the piece deals with multiemployer trust funds in the private sector, many of the issues are common to public fund trustees (employee-elected vs. employer-appointed). What, then, is the two-hat issue, sometimes referred as the two-hat dilemma? A union official or employer wears the hat of a trustee when sitting on the board of a fund. His duty to participants and beneficiaries is often at odds with the trustee's loyalties to the entity (union or employer) that appointed the trustee. An understanding of the two-hat dilemma is essential to all aspects of fiduciary responsibility." (Cypen & Cypen)
House Committee Approves Bill That Restricts 401(k) Advice to Independent Advisers
Excerpt: "Today's bill merged two proposals that were introduced this year: one made by Rep. Rob Andrews, D-N.J., focused on conflicted investment advice, the other sponsored by the committee's chairman, Rep. George Miller, D-Calif., would have required increased disclosure of fees and expenses in 401(k) plans. The new bill incorporates a proposal to provide corporate plan sponsors with temporary relief from making required contributions to their traditional defined benefit pension plans." (Investment News; free registration required)
Rep. Pomeroy Shares Pension Funding Reform Thoughts
Excerpt: "North Dakota Democratic U.S. Representative Earl Pomeroy on Tuesday unveiled a wide variety of possible approaches to helping defined benefit pension plans make it through the down economy. Among the notions Pomeroy is pondering, according to the 'discussion draft' released by his office, are: A loosening of restrictions on asset smoothing by expanding the corridor which currently limits the smoothed values to stay within 10% of the fair market value (FMV) of plan assets." (PLANSPONSOR.com; free registration required)
[Guidance Overview] Final PBGC Regulations on Reporting by Underfunded Plans (PDF)
3 pages. Excerpt: "ERISA requires sponsors of certain underfunded pension plans and their controlled group members to report financial and actuarial information ('4010 filings') to the Pension Benefit Guaranty Corporation (PBGC). . . . Effective for information years beginning after December 31, 2007, [the Pension Protection Act of 2006] changed the 4010 reporting requirements by: Replacing the $50 Million Gateway Test with a new test based on the funding target attainment percentage (FTAP) of each plan in the controlled group; Revising the information that must be included in the 4010 filing; Waiving reporting in certain cases for controlled groups with aggregate underfunding of $15 million or less; and Providing guidance on reporting requirements for sponsors of multiple employer plans. Recently, the PBGC published final regulations to reflect these changes. In addition, the PBGC published Technical Update 09-2, which provides an alternative assumption when determining benefit liabilities for purposes of the 4010 filing." (Prudential Retirement)
The West Virginia Teachers' Retirement System: DC to DB to DC?Then Back Again
Excerpt: "Until June 30 of this year, participants who transferred into the DB plan also have the option to make up for not making? the same contributions by purchasing benefits credits. Since DC plan members only contributed 75% of what DB members? contributed? (4.5% versus 6%), Lambright says, the basic service? transfer was set at 75%. Those who want to purchase the remaining 25% service credit pay a cost based on the 1.5% of pay not contributed, plus 4% interest." (PLANSPONSOR.com; free registration required)
Is GM Facing a Repeat of Bankruptcy?
Excerpt: "In the thunderous collapse of GM, one detail seems to have gone almost unnoticed. The old GM's US pension fund, with its near-$100bn of liabilities, is being transferred lock, stock and barrel to the new entity. As a direct result, the new GM could be bankrupt again in a very few years. GM's US fund is, of course, in deficit, but the company has made no contributions since 2003. Back then, it put in $18.5bn, which it raised through a bond issue. Since this counted as a pre-payment, GM is not obliged to pay any more for the next year or two. However, it will then have to start plugging the gap, under the new rules set down by the Pension Protection Act of 2006." (Alberto Dominguez via What's an Actuary?)
Four New Mexico Public Employee Unions Sue to Stop 'Wage Tax' for Pensions
Excerpt: "Four of New Mexico's public employee unions are suing the state to stop the enactment of a new law that decreases the state's payment into public employee pension funds by 1.5 percent for two years. . . . If enacted . . . the law will force more than 66,000 public employees to shore up the state's budget deficit by paying 1.5 percent more out of their paychecks into PERA and ERB, the state's public employee pension funds." (The New Mexico Independent)
California's Governor Opposes the CalPERS Proposal to Spread Losses Over 30 Years
Excerpt: "The state's largest pension plan is scheduled to vote today on a proposal to spread this year's severe investment losses over 30 years and save cash-strapped state and local governments hundreds of millions of dollars initially. But Gov. Arnold Schwarzenegger opposes the move as a 'pass-the-buck-to-our-kids idea.' The California Public Employees' Retirement System, the fund for state and local government workers, has to take action to cover tens of billions in losses from the recession. Its holdings were valued at $239.2 billion at the start of last July but plummeted nearly 30% by the end of March, a month when key stock market indexes fell to their lowest levels in more than a decade." (Los Angeles Times)
[Guidance Overview] Stock Contributions to Pension Plans
Excerpt: "With the current cash-tight environment, some sponsors are considering using stock in lieu of cash as a contribution to pension plans. In this article, we highlight key considerations for plan sponsors considering a stock contribution." (JPMorgan Chase & Co.)
Sources of Funding of Public Pension Plans (PDF)
1 page. Excerpt: "Unlike private-sector defined benefit plans, public-sector pension plans are not funded entirely by employers. They are financed by workers as well as employers . . . . Public pension revenue relies on three sources: earnings from investments, government (employer) contributions, and worker contributions. Public pension plans depend largely on investment earnings, because they are generally financed on a 'funded' basis rather than a pay-as-you-go basis." (Employee Benefit Research Institute)
[Guidance Overview] Plan Provision Relieving Trustee of Duty to Monitor and Collect Contributions Is Void as Against Public Policy
Excerpt: "EBIA Comment: We found the court's final comments most interesting. Under the heading 'Coda,' the court essentially admonished the DOL for using the courts to establish a trustee's duty to monitor and collect contributions rather than its rulemaking authority. The court then noted that the implications of its order will require 'nuanced development' and a 'proper balance' that must be provided by DOL rulemaking, so that a trustee's duty to collect unpaid contributions does not become so costly and burdensome that small employers will not be able to provide retirement benefits for their employees." (Employee Benefits Institute of America)
DC Spending Now Ahead of DB Spending, According to Mercer Study
Excerpt: "For the first time, employers' median spending on defined contribution (DC) benefits in 2008 topped their median spending on earned pension benefits, according to Mercer's annual study of S&P 500 companies' retirement programs. A Mercer news release said the latest data reflects the now well-documented shifting defined benefit to defined contribution benefits landscape, with the median defined contribution plan costing 0.39% of revenue in 2008, compared to the median value of median defined benefit accruals of 0.38% of revenue. Although DC spending was relatively constant from 2005 through 2008, DB spending was down from 0.51% of revenue in 2005, Mercer reported." (PLANSPONSOR.com; free registration required)
New Mexico State Workers Sue Over Pension Changes
Excerpt: "Multiple unions representing more than 60,000 state and public school employees filed a lawsuit against the state of New Mexico on Monday, accusing the state of violating employees' constitutional rights by decreasing contributions to public employee pension funds and making employees fill the gap. 'We believe this was in order to remedy a general budget shortfall, and we believe it's just not fair,' said attorney Shane Youtz at a news conference . . . ." (KRQE News 13)
Auto Sector Pension Plans: Information for Workers and Retirees
Excerpt: "This information page is offered as a service to workers and retirees who have questions about their PBGC-insured benefits. The PBGC is not commenting on the future of U.S automotive companies or suggesting their pension plans will be assumed by the PBGC." (Pension Benefit Guaranty Corporation)
Plans and Government Go Toe-to-Toe Over Need for Pension Funding Relief
Excerpt: "'PBGC has questioned whether or not the case has been made as to whether additional relief is necessary,' said Kyle Brown, retirement counsel at Watson Wyatt Worldwide, Arlington, Va. 'There are plenty of us who believe the case has been made.' In a series of meetings with Capitol Hill committee aides -- and through a widely circulated talking-points paper -- executives at the PBGC claim pension plan officials and lobbyists haven't made a credible case for additional relief." (Pensions & Investments)
Many 401(k) Sponsors Suspending Matching Contributions Are Funding Defined Benefit Pension Plans (PDF)
Pages 12- of 20 pages. Excerpt: "A review by the Employee Benefit Research Institute of 251 401(k) plan sponsors that have suspended matching contributions for their approximately 4.4 million workers finds that those employing 50 percent of the workers also maintained an open defined benefit plan. An additional 16 percent of workers were with employers that were still obligated to fund a frozen defined benefit plan. Further, 8 percent of the workers were with an employer that had both an open and a frozen defined benefit plan that carried funding obligations." (Employee Benefit Research Institute)
IASB Proposes Clarification of Accounting for Prepaid Pension Contributions
Excerpt: "The IASB has proposed changes to IFRIC 14, IAS 19--The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, to clarify how much of an asset may be recognized for prepaid minimum required contributions to pension plans. As proposed, an employer reporting under IAS that sponsors a US qualified pension plan with ongoing accruals could apparently recognize an asset equal to the greater of the plan's surplus or its credit balance. Whether this was the intended result is unclear, so further revisions of the proposal are possible. The comment deadline is July 27, 2009." (Mercer LLC)
Milliman Study Indicates Decline in Pension Funding Status in May (PDF)
2 pages. Excerpt: "Milliman, Inc. . . . released the latest update to the Milliman 100 Pension Funding Index, which consists of 100 of the nation's largest defined benefit pension plans. In May, pensions experienced declines in funded status due to liability increases of roughly $30 billion, which offset modest asset gains of $20 billion. The decline in funding status followed two consecutive months of improvement." (Milliman)
Results from Survey of Calendar-Year Plans' 2009 Zone Status and Freeze Elections, Spring 2009 (PDF)
4 pages. Excerpt: "The market downturn has had a dramatic impact on the zone status of multiemployer pension plans. The [survey] found that, compared to one year earlier, many more plans are now in the red zone and the yellow zone while the number of plans in the green zone has dropped precipitously. In addition, the survey found that the average PPA'06 funded percentage for calendar-year plans declined. The survey also reports the number of calendar-year plans that elected to freeze their zone status, as allowed by the Worker, Retiree and Employer Recovery Act of 2008." (The Segal Group, Inc.)
Can You Count on Monthly Pension Checks from Your Former Employer? Five Things You Need to Know
Excerpt: "If you're entitled to a pension, you might be wondering how your plan is faring. The numbers alone suggest there's reason for concern: In 2008 assets in private defined-benefit plans fell an average of 26%, according to Watson Wyatt management consulting. That has left many plans below their legal funding target." (CNNMoney.com)
New York Governor Vetoes Routine Extension of Pension Provision; Would Have Provided More Generous Benefits
Excerpt: "Paterson shocked Capitol insiders by vetoing a routine extension of a law that lets newly hired police and firefighters join an older plan no longer available to most public employees. The vetoed plan allows police officers and firefighters to retire after 20 years at half salary. As a lawmaker, Paterson routinely supported the measure." (NYDailyNews.com)
Delphi Retirees Plan Class Action Suit Over Pension Benefits; Claim 'Liquidation' Not Reorganization
Excerpt: "Think that Delphi Corp.'s salaried retirees are going to fade away after several negative rulings in federal court? Think again. (Business-Journal.com)
Major Auto Parts Supplier Intends to End Salaried Employees' Pension Plan
Excerpt: "Financially troubled auto parts manufacturer Delphi Corp. said it intends to shed its underfunded pension plan for salaried employees and retirees as part of a plan to emerge from bankruptcy reorganization." (Business Insurance)
[Guidance Overview] Pension Legislation in the States During 2009 (as of May 1, 2009)
Excerpt: "This report summarizes major pensions and retirement enactments in the state legislatures as of April 20, 2009. At that time, nearly 40 of the 50 state legislatures and the Legislature of Puerto Rico remained in session. This report is therefore an incomplete review of what will have been enacted by the end of legislative sessions, most of which will have ended by July 1, 2009." (State Legislatures Magazine, National Conference of State Legislatures)
Five Years of Corporate Pension Plan Funding Gains Gone in Market Collapse
Excerpt: "The top 100 U.S. corporate pension plans saw their funded status drop by nearly 30 percentage points in 2008, giving up all gains of the previous five years." (Workforce.com)
[Opinion] The Staying Power of Pensions in the Public Sector (PDF)
Excerpt: "This article explores why DB plans have 'staying power' in the public sector, from the perspective of employers, employees, and taxpayers. It concludes that pensions are an effective way to meet the objectives of all three stakeholder groups, suggesting that the public sector ought not to mimic the private sector trend away from DB pensions." (National Institute on Retirement Security)
[Opinion] GM Pension and Healthcare Promises Sucked It Down the Drain; Here Comes California
Excerpt: "[A]mong the obligations that caused GM to file for bankruptcy, two are directly related to worker entitlements. In 2003, GM sold $13.5 billion in bonds -- one of the biggest debt offerings ever -- and plowed the money into its pension fund. Then, in 2007, after the UAW went on strike, GM agreed to funnel more than $30 billion into a special trust for retiree health care. Both the pension bond and the retiree-trust obligation helped topple GM into Chapter 11 bankruptcy. Of course, they weren't the only causes." (Roger Lowenstein on Bloomberg.com)
[Opinion] Dumping of Defined-Benefit Plans By Governmental Employers Has a Cost, Too
Excerpt: "Accounting rules can require pension costs to accelerate in the wake of a freeze, and maintaining two plans is more costly than operating one. . . . Our research shows that pensions are the most fiscally responsible way to fund retirement. The economic efficiencies embedded in pensions enable them to deliver the same retirement benefit at half the cost of individual accounts." (National Institute on Retirement Security)
Two-Thirds of Frozen Plans Not Being Changed, But Some Might Be Terminated
Excerpt: "More than one-fourth of the 48 companies with 'hard frozen' plans (those with no future accruals) surveyed by Aon Consulting are contemplating the termination of their plan. The top five reasons, in order, for terminating a nonunion hard frozen plan, or terminating or moving a 'soft frozen' plan (those with no new participants) to hard frozen status, were . . . ." (Wolters Kluwer)
Almost 700 Retired Public Educators in New York State Are in '6-Figure Club'
Excerpt: "The 690 school retirees join 899 state and local government workers in the six-figure state pension club." (TimesUnion.com)
Database Online of California State Pensioners Receiving More than $100,000 Annually
Excerpt: "The information below was obtained under the Freedom of Information Act from the California Public Employees Retirement System (CalPERS)." (California Foundation for Fiscal Responsibility)
[Guidance Overview] DB Plans Face Steep Increase In Variable-Rate Insurance Premium
Excerpt: "In 2008, the value of investments held by defined benefit (DB) pension plans dropped precipitously. Provisions of the Worker, Retiree and Employer Recovery Act (WRERA), judicious elections of valuation methods and the recent IRS announcement on the 'applicable month' will ameliorate the impact of the market decline on 2009 required contributions.1 However, DB plan sponsors also face a steep increase in their variable-rate premium (VRP), which is paid to the Pension Benefit Guaranty Corporation (PBGC) to insure vested employee pension benefits. " (Watson Wyatt Worldwide; free registration required to access paper)
State of the Pension System 2009 (PDF)
20 pages. Excerpt: "The purpose of this report is to provide an overview of the public pension systems in Massachusetts, particularly in relation to the funding, investment, and benefit structure under which those systems operate. Perhaps most importantly at the outset we have attempted to place the impact of the investment experience in 2008 in context and to set forth the condition of the systems as that year began, as well as to estimate the state of the systems in the wake of that unprecedented calamity. The final sections of the report are devoted to addressing some of the myths that persist with respect to the level of benefits and financing ofMassachusetts retirement systems." (Commonwealth of Massachusetts Public Employee Retirement Administration Commission)
[Guidance Overview] PBGC Semiannual Regulatory Agenda Addresses USERRA Benefits
Excerpt: "The Pension Benefit Guaranty Corporation (PBGC) has released its semiannual regulatory agenda for Spring 2009, which outlines regulations that have been selected for amendment during the next year, as well as any regulations that have been recently finalized." (Wolters Kluwer)
Financial Crisis Causes Some Plan Sponsors To Tighten Their Retirement Plan Policies
Excerpt: "The accrual of pension benefits in a defined benefit plan was discontinued in the past 12 months by 11.3% of plan sponsors due to the financial crisis, according to a recent survey conducted by the International Foundation of Employee Benefit Plans (IFEBP). Another 15.7% of plan sponsors reported that other factors caused them to discontinue offering pension benefits for some or all categories of active employees." (Wolters Kluwer)
The Hewitt Pension Risk Tracker
Excerpt: "This is an interactive series of Indices which shows the aggregate funding level of the pension funds of companies in a number of equity indices from around the world on an 'accounting' and 'wind-up'/'Settlement' basis. The charts plot both the assets and liabilities of these pension funds, based on figures disclosed in publicly available accounts. All figures are updated daily." (Hewitt Associates)
[Guidance Overview] Fourth Circuit Says Anti-Cutback Rule Does Not Apply to Ad Hoc Post-Retirement Benefit Increases
Excerpt: "Conclusion: Employers faced with difficult decisions in this economy may find themselves evaluating their options and will most certainly look to this Sixth Circuit decision as important in their decision-making. Certainly, for benefits increases granted before the effective date of Treasury's 2005 regulations, the result is more clear than for benefits increase granted after the effective date." (Attorney B. Janell Grenier via Benefitsblog.com)
International Accounting Standards Board Agrees to Weigh in on Use of Discount Rate for Pension Funding
Excerpt: "The International Accounting Standards Board (IASB) has agreed to delay publication of an exposure draft on pensions accounting in order to address certain aspects of the use of the discount rate in pension funding calculations. According to a BNA news report, 'Some IASB constituents have complained that using an AA-corporate bond discount rate in current markets has led to entities reporting lower pension fund surpluses merely as a consequence of widening credit spreads.'" (PLANSPONSOR.com; free registration required)
Are General Motors Pensions in Peril?
Excerpt: "James Seward, an associate professor of finance, investment and banking at UW-Madison, said if GM files for bankruptcy, it likely would terminate the pension plan and offload its obligations to the Pension Benefit Guaranty Corp. The PBGC insures private-sector pension plans and pays benefits to workers when plans fail. It likely would pick up a portion -- but not all -- of the unfunded obligations. . . . The shortfall likely would hit retirees in the form of smaller benefits. Some analysts have said retirees on average could see a 10 to 20 percent reduction in monthly pensions. But that reduction likely will be much larger for workers age 55 to 62, said Karen DeOrnellas of the newly formed General Motors Retirees Association." (The Janesville Gazette)
Traditional Company Pensions Are Going Away Fast
Excerpt: "The number of companies offering traditional defined benefit pension plans was shrinking even before the recession, but the downturn has accelerated the decline. Since the beginning of the year, at least 20 companies have frozen their defined pension plans, exceeding the number of plan freezes for all of 2008. A recent survey by Watson Wyatt found that, for the first time, the majority of Fortune 100 companies are offering new salaried employees only one type of retirement plan: a 401(k) or similar 'defined contribution' plan. . . . [Pension freezes are] particularly hard on older employees, who have less time to make up the difference by saving more. In addition, traditional pensions 'are worth a lot more at the end of your career than at the beginning of your career,' Friedman says. 'If the freeze comes in your 40s and 50s, you end up with a much smaller benefit.'" (USA Today)
[Guidance Overview] IRS Provision of WRERA Funding Relief Election Procedures (PDF)
5 pages. Excerpt: "These developments affect sponsors of and participants in qualified multiemployer defined benefit plans. They do not affect single-employer plans, multiple employer plans, governmental plans or church plans that do not elect to be covered by ERISA ('non-electing church plans'). . . . On December 23, 2008, President Bush signed into law the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA). In response to the current economic crisis, WRERA provides welcome funding relief for multiemployer plans. For plan years beginning on or after October 1, 2008, and before October 1, 2009, WRERA allows plans to temporarily freeze their funding status based on the prior year's actuarial certification. In addition, the sponsor of a multiemployer plan may elect for a plan year beginning in 2008 or 2009 to extend the plan's applicable funding improvement plan or rehabilitation plan by three years.The IRS recently issued Notice 2009-31 to provide guidance relating to the elections offered under WRERA." (Prudential Retirement)
Deficit at PBGC Tripled in the Last Six Months to a Record High
Excerpt: "The agency, the Pension Benefit Guaranty Corporation, faced a shortfall of just $11 billion as of October. The combined effect of lower interest rates, losses on its investment portfolio and rising numbers of companies filing for bankruptcy produced the jump in its projected deficit, officials said Wednesday. Because the agency has $56 billion in assets -- most of which is invested in Treasury bonds -- it is not facing any prospect of default in the short term, officials said." (The New York Times; free registration required)
[Opinion] Specific Defined Benefit Plan Funding Relief Proposals (PDF)
5 pages. Excerpt: "First Relief Proposal: Amortization of 2008 Losses. In general. Under the Pension Protection Act of 2006 ('PPA'), 2008 asset losses must be amortized over seven years. The problem is that these losses are so large that seven-year amortization creates unmanageable funding obligations. Employers need time to recover before they can begin making up for these losses. On the other hand, if no contributions are made, the funding shortfall will only grow larger. Accordingly, we propose that for two years, employers shall be required to pay interest on their plans' 2008 losses to prevent the plans' shortfall from growing, but seven-year amortization of those losses would not commence until the expiration of those two years. So, all 2008 losses would be fully funded, but only two years later than would otherwise be the case." (American Benefits Council)
Automotive Pension $77 Billion Shortfall Could Spell Trouble for Younger Retirees' Benefits
Excerpt: "The entire auto industry -- which would include the Detroit Three, as well as other auto manufacturers and auto suppliers that offer defined-benefit pension plans -- is looking at a combined $77 billion in underfunded pension liabilities, based on the estimates of the Pension Benefit Guaranty Corp. We do not want to alarm anyone. So make no mistake, the rug is not being pulled out from under most auto retirees. Many older retirees at General Motors Corp. and Chrysler LLC face no change in their pension payout." (Detroit Free Press)
Post-Bankruptcy Pension Cost: Potential Jobs Killer
Excerpt: "This economic downturn includes a problem that we have seen before -- an ever-growing number of underfunded pension plans. But one big difference this time is that additional fees imposed in 2006 can prevent a company from reorganizing and thereby hasten the day it closes its doors. Just as it was from 2002 to 2003, pension shortfalls arose from the combination of the stock market and an overall interest rate drop at the same time. That combination of events can create deficiency in a previously fully funded plan almost overnight. Most of a pension plan's liabilities are for payments to be made well into the future. To evaluate the adequacy of a plan's funding, those obligations are discounted to a 'present value.'" (Law360 via Haynes and Boone, LLP)
Many Frozen Pension Plans Likely to Be Terminated, According to Report
Excerpt: "Companies with frozen pension plans are more likely to consider investment strategies that will eventually allow them to terminate the plans, rather than continue them, Aon Consulting reports in the brief titled 'Ready 2012: Pension Pulse Survey.'" (Employee Benefit Adviser)
Automotive Industry Salaried Retirees Join Forces to Save Pensions and Benefits
Excerpt: "More than 200,000 salaried retirees from the U.S. automotive industry have formed a coalition to fight for their benefits. The presidents of each of the four national retiree associations of Chrysler LLC, Delphi Corp., General Motors Corp. and Ford Motor Co. announced Thursday the formation of the National Automotive Coalition (TNAC). . . . [T]he salaried retirees of the four organizations are being urged to meet with their congressional representatives on a face-to-face basis to determine support for their concerns. 'We have a six-point agenda to discuss with each representative,' . . . . 'We want to know if they are for or against us.'" (Kokomo Tribune)
Chrysler's Pensions Are Underfunded by $10 Billion
Excerpt: "Bankrupt Chrysler LLC's pension plans may be underfunded by more than $10 billion, the federal Pension Benefit Guaranty Corp. has estimated. If the pensions are terminated, the agency's claim for the shortfall in the automaker's bankruptcy case 'would exceed $9 billion,' Chrysler lawyers said in a filing today in U.S. Bankruptcy Court in New York." (Bloomberg L.P.)
Annual Pension Funding Notice Causes Widespread Participant Confusion, Termination Fears
Excerpt: "A recent PBGC website posting reassures pension plan participants that receiving an annual funding notice (AFN) 'does not mean that your plan is terminating or that it has been trusteed by the PBGC.' The PBGC has been flooded with calls from participants misinterpreting their first AFNs -- distributed by April 30 for calendar-year plans -- as a sign their plans were terminating. The confusion may have resulted from sponsors' use of a DOL model notice prominently stating that the AFN summarizes federal plan termination rules but never mentioning that the plan is not actually terminating." (Mercer LLC)
[Guidance Overview] Detailed Description of Code Section 436 Restrictions on Single-Employer Defined Benefit Plans (PDF)
18 pages. Excerpt: "The Pension Protection Act of 2006 . . . established a new code section -- section 436 -- that imposes benefit restrictions for underfunded single-employer defined benefit plans. . . . This report examines the proposed regulations and the impact they will have on single employers that maintain defined benefit plans during 2008 and beyond. . . . Because the rules affect the plan's qualification and the sponsor's fiduciary responsibility under Title I of ERISA, they are important not only to actuaries, but to employee benefits attorneys as well." (Prof. Kathryn J. Kennedy; Reprinted by Permission of Tax Analysts; All Rights Reserved)
[Guidance Overview] The Change in the 2009 Valuation Interest Rate from December 2008 Spot Rates to October 2008 Spot Rates
Excerpt: "In a surprise pronouncement that should be welcome news to all sponsors of underfunded defined benefit plans, the IRS announced that for 2009, it would allow plan sponsors to use an 'applicable month' approach to selecting a PPA yield curve. In this article, we show that the October full yield curve will often be most favorable and discuss the welcome effects." (JPMorgan Chase & Co.)
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