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News Items, by Subject

Actuarial - funding of pensions

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Illinois Pension Buyout Participation Rate Higher Than Expected, Early Numbers Show
"Since it launched in December, at least 200 new retirees took the deal, more than expected.... The program is designed to save the state about $380 million per year. Neighboring Missouri introduced a similar program for their state employees in 2017.... 22 percent of retirees there took the buyout ... Missouri offers a 60 percent match while Illinois is offering 70 percent." (WNIJ)
Vallejo No Longer Bankrupt But Budget Gap Grows
"Vallejo has taken two steps to reduce pension costs. An extra $6.5 million payment was made to CalPERS in fiscal 2013-14. Two years ago a $1 million payment was made to a new trust that sets aside money to help pay future pension costs. And yet, Vallejo's police and firefighter pension rate is among the top two dozen listed by CalPERS. It was 28.1 percent of pay in 2008, more than doubled to 68 percent of pay this fiscal year, increases to 78 percent in July, and in 2024 is an estimated 90 percent of pay." (Calpensions)
The Los Angeles Teacher Strike Has a Huge Problem: Pensions
"The United Teachers of Los Angeles and the Los Angeles Unified School District both want teachers to be paid more, class sizes to be reduced, and more support staff hired. But these items are expensive and run headlong into the fiscal wall created by big employee benefit promises to retirees. Pensions and retiree healthcare commitments now threaten the district with insolvency if it accedes to the union position." (Manhattan Institute)
$60M Deal Gets Green Light in SSM Health 'Church Plan' Suit
"If approved, the settlement would require SSM Health to commit to fully funding its retirement plan for 10 years. The deal would also force SSM Health to pay $15 million to the plan each year from 2019 to 2022, bringing the hospital system's total settlement-imposed plan contributions to $60 million." (Cohen Milstein)
PBGC to Pay Pension Benefits for Employees and Retirees at Sears and Kmart
"[PBGC] is taking steps to assume responsibility for Sears Holdings Corporation's two defined benefit pension plans, which cover about 90,000 people.... Sears filed for Chapter 11 protection on October 15, 2018. PBGC is stepping in to become responsible for the company's two pension plans because it is clear that Sears' continuation of the plans is no longer possible.... PBGC estimates that the Sears' plans are underfunded by $1.4 billion leaving them 64 percent funded." (Pension Benefit Guaranty Corporation [PBGC])
[Official Guidance] Text of PBGC Interest Rate Update for Benefits Payable in Terminated Single-Employer Plans, February 2019
"The February 2019 interest assumptions under the benefit payments regulation will be 1.25 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for January 2019, these assumptions represent a decrease of 0.25% in the immediate rate and are otherwise unchanged." (Pension Benefit Guaranty Corporation [PBGC])
Pension Derisking: Start with the End in Mind (PDF)
12 pages. "Recognizing that all plans are different, the formulation of each plan's glide path should begin by determining the funding-level objective at which the plan sponsor wishes to minimize volatility of funding status. Once that level of funding is identified and a matching end-state asset portfolio has been designed, a gradual path based on funding level and asset allocation can be mapped." (Vanguard)
[Opinion] Public Pension Fund Crisis Has a Start Date
"A simple extrapolation of the lines suggests a crisis around 2023, when pension fund assets are wiped out. That's an extrapolation, not a prediction. Market returns and political actions could move the date a few years in either direction. Moreover, action will be forced before assets go to zero. We don't know when or how or what will happen, but it won't depend on average investment returns over the next few decades." (Bloomberg)
Getting Your DB Plan Ready to Land Safely
"As plans get closer to their intended destination and as they line up for their (hopefully) final approach, emphasis needs to turn more towards addressing the liability risks.... Continually changing liabilities and short-term cash flow demands can provide severe and unpredictable turbulence and strong side winds on that final approach to the runway.... Making use of the best technology to regularly track not only your assets, but also your liabilities in detail -- and, most importantly, the interaction between the two -- is essential if you don't want to lose control at critical moments." (RiskFirst)
Most Pension Plans Will Have Seen Material Declines in Funded Status During December
"In December, discount rates decreased sharply from the 2018 high water mark the past couple months, dipping nearly 0.25%. Despite the decline, rates are still slightly higher than rates at the end of Q3 2018 and are up over 0.60% since the end of 2017." (River and Mercantile Solutions)
Pension Finance Update, December 2018
"December was the worst month for pensions in a decade, due to plunging stock markets and lower interest rates. Both model plans ... gave back all 2018 gains to date and then some -- Plan A lost 8% last month, ending 2018 down 1%, while the more conservative Plan B lost more than 2% in December, ending 2018 down almost 2%[.]" (October Three Consulting)
FAS87 ASC715 Discount Rates and Moody's Rates, Updated January 2, 2019
An unofficial monthly report as of January 2, 2019, of the Moody's Daily Long-term Corporate Bond Yield Averages and Moody's Daily Treasury Yield Averages (used as benchmarks by some corporate pension plans). (David Rigby, via BenefitsLink Message Boards)
Funded Status of Largest U.S. Corporate Pension Plans Slipped in 2018
"[T]he aggregate pension funded status is estimated to be 84% at the end of 2018, compared with 85% at the end of 2017. After the first nine months of 2018, the aggregate pension funded status stood at 90%.... [T]he pension deficit is projected to be $255 billion at the end of 2018, slightly lower than the $260 billion deficit at the end of 2017." (Willis Towers Watson)
Significant Reforms to State Retirement Systems (PDF)
98 pages. "Since 2009, nearly every state passed meaningful reform to one, or more, of its pension plans. Although the global market crash and recession affected all plans, differing plan designs, budgets, and legal frameworks across the country defied a single solution; instead, each state met its challenges with tailored changes specific to its unique circumstances." (National Association of State Retirement Administrators [NASRA])
Are You Liable for Unfunded Pensions? Don't Ignore Successor Liability, Part 2
"How can buyers protect themselves? [1] Thoroughly investigate potential Title IV liabilities prior to the closing.... [2] With an actuary's help, review the plan's funding notices and status and any available liability estimate from the plan. [3] Investigate the seller's financial situation to assess the likelihood that seller will not pay any pension liability assessment. [4] Consider special purchase agreement provisions ... [5] Be cautious about using ERISA Section 4204 to avoid a withdrawal on the sale." (Cohen & Buckmann, P.C.)
Multiemployer Plan Bailout Outlook for 2019
"The two major takeaways from the work of the Joint Select Committee were: [1] all 8 Democratic members strongly supported some type of loan program but were willing to consider other options in addition to the loan program; [2] a majority of Republican members ... strongly opposed a loan program and preferred a solution that relied on the PBGC to assume a significant portion of the financial crisis[.]" (Burypensions)
As a Grocery Chain Is Dismantled, Investors Recover Their Money, But Worker Pensions Are Short Millions
"For Sun Capital, this process of buying companies, seeking profits and leaving pensions unpaid is a familiar one. Over the past 10 years, it has taken five companies into bankruptcy while leaving behind debts of about $280 million owed to employee pensions.... Much of the tab will be picked up by the government's pension insurer, a federal agency facing its own budget shortfalls." (The Washington Post; subscription may be required)
D.C. Court of Appeals: Delta Pilots Cannot Recover Fiduciary Breach Damages from Plan's Post-Termination Investment Gains (PDF)
"The Corporation argues that it is entitled under Section 1344(c) to any post-termination increase in the value of pension plan assets. In other words, the Corporation reasons, Congress has already decided who benefits or suffers the loss from a change in the value of plan assets once that plan has been terminated. Therefore, the Corporation concludes that the pilots cannot recover that money as equitable relief for an alleged breach of fiduciary duty. We agree.... The pilots' request for post-termination investment gains is fundamentally flawed." [Lewis v. PBGC, No. 17-5068 (D.C. Cir. Dec. 21, 2018)] (U.S. Court of Appeals for the District of Columbia Circuit)
Some Unions Turning to Variable Benefit Pension Plan Model
"[T]he $95 million New Orleans Carpenters Pension Plan, a plan close to 100% funded ... added a variable plan design for all benefits that have accrued since May. The basic premise ... is that benefits are adjusted up or down based on investment returns. The assumed rate of return ... determines whether benefits for all participants, including retirees, rise or fall on a plan year basis." (Pensions & Investments)
[Opinion] Groundhog Day Meets Mortality Assumptions
"[T]he updated tables reduce the typical pension plan liability by about 0.4%. MP-2018 is a repeat of the prior three year's downward trend that has cumulatively reduced pension liabilities by approximately 3%, with the zenith of longevity optimism occurring with the release of MP-2014." (NISA Investment Advisors; free registration required)
Deep-in-Debt CalSTRS Also Has $9.8 Billion Surplus
"The main CalSTRS pension fund is seriously underfunded, and school district pension costs are more than doubling, biting deep into classroom budgets. But a CalSTRS inflation-protection fund has a growing $9.8 billion surplus and an eye-popping positive cash flow.... [T]he add-on inflation protection is a separate special fund ... [which is] paid for only by the state ... Step-by-step, inflation protection grew from 58.4 percent to 85 percent of original purchasing power." (Calpensions)
[Official Guidance] Text of IRS Notice 2019-03: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for December 2018 (PDF)
"This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3), and the 24-month average segment rates under Section 430(h)(2) ... In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I)." (Internal Revenue Service [IRS])
New Class Action Wave: Actuarial Equivalents in Pension Plans (PDF)
"A court in New York is being asked to certify a class action lawsuit served on MetLife earlier this month. This was followed by a nearly identical lawsuit in Texas served on American Airlines as well as another in New York served on PepsiCo. The first two suits fault the use of an old mortality table in determining optional forms of distribution; the PepsiCo suit faults simplified option factors.... These cases highlight the possible need to periodically re- evaluate the reasonableness of factors currently used in ERISA pension plans." (Buck)
Case Study: Assisting a Plan Sponsor with Its Investment Portfolio Using Asset Liability Modeling
"The plan sponsor wanted to explore investment options that would best allow it to meet its future contribution requirements while limiting the risk of being underfunded on either an accounting or PBGC basis.... In the first stage, the risk budget was set so that the split between equities and fixed income investments was quantified.... [T]he goal of the second stage of the [asset liability modeling] study was be to allocate the risk budget specified from stage one via equity diversification within the portfolio." (Milliman)
[Official Guidance] Text of PBGC Interest Rate Update for Benefits Payable in Terminated Single-Employer Plans, January and First Quarter 2019
"The first quarter 2019 interest assumptions under the allocation regulation will be 3.09 percent for the first 20 years following the valuation date and 2.84 percent thereafter.... The January 2019 interest assumptions under the benefit payments regulation will be 1.50 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for December 2018, these interest assumptions represent no change in the immediate rate and no changes in i1, i2, or i3." (Pension Benefit Guaranty Corporation [PBGC])
[Opinion] Actually, the Central States Pension Plan Is Fully Funded
"There is another 'Central States' -- the Midwest Pension Plan sponsored by the Central States Joint Board ... [and] it's fully funded.... [U]nlike the Central States/Teamsters mob connections which ... resulted in such a corrupt management of their funds that the union was stripped of its ability to control those funds in 1982, the Central States Joint Board seems to have suffered no ill effects and may even have seen unexpected benefits: because pension funds were (partially) kept at the bank ($16 out of $93 million), its assumed asset return was 6% per year in 1999 and for six years thereafter, considerably lower than the average rate used that year, 7.2% (or, at median, 7%)." (Elizabeth Bauer, in Forbes)
Plan Termination Pitfalls and How to Avoid Them: A Case Study
"[The] client determined that the final data file was not provided to the annuity provider and that the preliminary data file was used for the annuity purchases.... The magnitude of the calculation error would have created a large plan surplus as well as a large tax penalty if refunded back to the company as a plan sponsor at the conclusion of the plan termination. Additionally, annuities would have been purchased for participants who had already taken full distributions from the plan. This could have put the employer in the uncomfortable position of seeking a refund from the participants." (Milliman)
Pension Funding Index, December 2018
"In November, the funded status of the 100 largest corporate defined benefit pension plans improved by $7 billion ... The deficit fell to $100 billion primarily due to a robust investment gain of 0.72% for the month. Pension plan liabilities improved marginally during November as the benchmark corporate bond interest rates used to value those liabilities slightly increased. As of November 30, the funded ratio increased to 93.7%, up from 93.2% at the end of October." (Milliman)
[Official Guidance] Text of PBGC Final Regs: Allocation of Assets in Single-Employer Plans; Valuation of Benefits and Assets; Expected Retirement Age
"Under Section 4044.51(b) of the asset allocation regulation, early retirement benefits are valued based on the annuity starting date, if a retirement date has been selected, or the expected retirement age, if the annuity starting date is not known on the valuation date.... Appendix D of part 4044 contains tables to be used in determining the expected early retirement ages... This document amends appendix D to replace Table I‑18 with Table I‑19 to provide an updated correlation, appropriate for calendar year 2019, between the amount of a participant's benefit and the probability that the participant will elect early retirement. Table I‑19 will be used to value benefits in plans with valuation dates during calendar year 2019." (Pension Benefit Guaranty Corporation [PBGC])
[Guidance Overview] Surprise! You May Be Liable for Union Pension Plan Withdrawal Liability
"Shareholders of an incorporated business, partners in a partnership, or an alter ego or successor business may also be responsible for withdrawal liability if the participating employer does not pay the withdrawal liability to the pension plan. [This article provides] an explanation of the potential liability of individuals and entities, other than the employer, when the participating employer becomes insolvent and can't pay the withdrawal liability." (Frost Brown Todd LLC)
Retirement Plan Update, December 2018
"November was a very bumpy ride.... With a flat discount rate, most plan sponsors with a diversified portfolio may have seen a slight increase in funded status at month's end, but would have seen a bit of volatility intra month." (River and Mercantile Solutions)
Asset Purchasers Beware: Constructive Notice of Seller's Union Pension Liability
"A recent 9th Circuit decision called out a common misconception -- in the form of 'incorrect legal advice' that the buyer received prior to closing -- that '[a]bsent an express assumption of liability, the Buyer does not assume the [withdrawal] liability' for a multiemployer pension plan. The decision went on to hold a private equity fund liable for $480,000 of withdrawal liability, even though all parties conceded that the purchaser had no actual notice of the liability." [Heavenly Hana LLC v. Hotel Union & Hotel Industry of Hawaii Pension Plan, No. 16-15481 (9th Cir. June 1, 2018)] (The Wagner Law Group)
California Supreme Court Hears First Challenge to Public Employee Pension Reform
"The state Supreme Court, with four similar cases on the backburner, gave few signs during oral arguments on a labor-union challenge to Gov. Brown's pension reform yesterday that it's ready to take on the 'California Rule' preventing pension cuts." (Calpensions)
[Official Guidance] 2019 ERISA Section 4050 (Missing Participants) Mortality Table
"This mortality table is used as part of the 'missing participant annuity assumptions' as discussed in 29 CFR 4050. This mortality table is also available in EXCEL." (Pension Benefit Guaranty Corporation [PBGC])
Understanding the Central States Pension Plan's Tale of Woe
"Had the plan been well-run and properly funded, and had principles of multi-employer plan design and the relevant legislation been designed to ensure long-term solvency rather than relying on new generations of contributors to make up for losses, Central States would have weathered these storms. But Central States was missing all this.... They had flaws in their plan design. And they were neither well-run nor properly funded." (Forbes)
[Official Guidance] ERISA Section 4044 Mortality Table for 2019 Valuation Dates
"This mortality table is used to determine the present value of annuities in involuntary terminations and distress terminations of single-employer plans, as discussed in 29 CFR 4044. This mortality table is also available in EXCEL." (Pension Benefit Guaranty Corporation [PBGC])
FAS87 ASC715 Discount Rates and Moody's Rates, Updated November 30, 2018
An unofficial monthly report as of November 30, 2018, of the Moody's Daily Long-term Corporate Bond Yield Averages and Moody's Daily Treasury Yield Averages (used as benchmarks by some corporate pension plans). (David Rigby, via BenefitsLink Message Boards)
Pension Finance Update, November 2018
"After an awful October, pension finances stabilized in November, with both model plans we track [1] treading water during the month. Plan A eked out a fractional improvement in November and is now up 6% for the year, while the more conservative Plan B was unchanged last month and remains ahead by less than 1% through the first eleven months of 2018." (October Three Consulting)
Hatch, Brown Commit to Continued Work on Multiemployer Pension Crisis Past Nov. 30
"When the Joint Select Committee was created, it was expected members would vote on a package by this Friday. [Co-Chairs Orrin Hatch (R-UT) and Sherrod Brown (D-OH)] say that while they have made significant progress and a bipartisan solution is attainable, more time is needed and the committee will continue its work." (Joint Select Committee on Solvency of Multiemployer Pension Plans)
Panel Won't Meet Deadline on Fix for Multiemployer Pension Plans
"A bipartisan committee of lawmakers will miss a Friday deadline to reach an agreement on addressing financial shortfalls of multiemployer pension plans, meaning Congress is less likely to take up legislation on the matter before year's end. Both Republicans and Democrats on the panel said Thursday they nonetheless were close to agreeing on a proposal, and negotiations were expected to continue." (The Wall Street Journal; subscription may be required)
Summary Report by IRS Employee Plans Compliance Unit: Updating Frozen Defined Benefit Plans for Current Law and Other Compliance Issues
"Overall, the project showed that sponsors of the sampled frozen defined benefit plans amended their plans for current law by the required deadlines, however we found other issues: Incorrect pension feature code listed on Form 5500 ... Form 5500 filed incorrectly ... No Form 5500 filed ... Employer no longer in existence.... Now may be a good time to review your frozen defined benefit plan to see if you: [1] Still have a valid reason for keeping the plan frozen; [2] Have filed Form 5500 for your plan by the filing deadline; [3] Used the correct pension feature code on Form 5500; [4] Amended the plan for current law by the required deadline." (Internal Revenue Service [IRS])
The Multiemployer Solvency Crisis: Estimates of the Cost and Impact of the Butch Lewis Act (PDF)
"Across 500 stochastic trials, the average number of participants in plans projected to become insolvent is 3.2 million in the baseline scenario, and 2.3 million if [the Butch Lewis Act (BLA)] is implemented.... In about 40% of trials, plans covering more than three million participants are projected to become insolvent, while in about 20% of trials we project that fewer than one million participants will be affected by plan insolvency.... Across the 500 trials, the average loan default rate was 52% ... While the loan maturity period is 30 years, BLA delays plans' insolvency by an average of only 16 years." (The Pension Analytics Group)
Rescue for Failing Multiemployer Pensions Not Expected from Joint Select Committee
"A November 30 deadline was set to report bipartisan legislation. But Republican and Democrat members could not agree on an 'equitable' solution, despite getting 'close' to a compromise ... The Committee's inability to report legislation comes in spite of an array of economists that have warned of massive macroeconomic implications of letting the pensions, and the [PBGC] fail." (BenefitsPro)
Ten Investment Actions for Defined Benefit Plans in 2019
"[1] Avoid surprises.... [2] Reduce uncompensated risks.... [3] Make every dollar work harder.... [4] Concentrate your equity bets.... [5] Be a bond market trendsetter.... [6] Revisit financial management strategies.... [7] Stay informed about the changing annuity marketplace.... [8] Focus on value-for-fees rather than the fees themselves.... [9] Consider your governance structure.... [10] Maintain your defined benefit plan if it's the right fit for your company." (Willis Towers Watson)
[Opinion] Multiemployer Pensions: Waiting for the Bailout
"[W]hat is being proposed is a partial bailout, and plan participants in failing plans need to realize that the alternative to a partial bailout is not a full bailout but getting a hell of a lot less than that partial bailout. Even if they managed to get a few top-ups for a few years from a congenial Congress and President (no matter the party), eventually the money situation will be that it will not be sustainable. So it won't be sustained. There are those where surviving just a couple more years will be good enough. But for the pension plan as a whole... they need something more long-term." (STUMP)
Struggling Multiemployer Plans See Help Ahead at Expense of Healthy Funds
"The draft proposal ... offers several measures to help struggling plans protect retiree benefits, including increasing the PBGC minimum guarantee level ... It even undoes benefit cuts already authorized by the Treasury Department under [MPRA], but plans within five years of insolvency would cut to the minimum benefit level and then be terminated.... [H]ealthy plans would also be squeezed by a requirement to use a more conservative discount rate when measuring liabilities." (Pensions & Investments)
The Single Biggest Problem for Multiemployer Pension Plans
"[I]ncreasing contributions, decreasing benefits or providing a federally backed loan all call the viability of the broader defined benefit system into question. If confidence in the system is eroded, the potential economic drags ... may become even more severe as participation decreases and employers see profitability come under pressure." (J.P. Morgan Asset Management)
Unions Sue Puerto Rico Government Over Worker Retirement Accounts
"The action was filed in Puerto Rico's Title III bankruptcy case under the Puerto Rico Oversight, Management, and Economic Stability Act (Promesa). It seeks declaratory and injunctive relief for the workers, 'based on the commonwealth's admission that it failed to implement the provisions of Puerto Rico Law 106 of 2017, a law that was supposed to create and protect individual defined-contribution retirement accounts for thousands of union-represented workers'[.]" (Caribbean Business)
[Official Guidance] PBGC to Provide Early Financial Assistance to Local 805 Multiemployer Pension Plan
"[PBGC] has approved a partition application and will provide early financial assistance to the Teamsters Local 805 Pension and Retirement Plan, a trucking industry multiemployer pension plan based in New York that covers approximately 2,000 participants. The early financial assistance from PBGC, together with benefit reductions that are required as a condition for receiving PBGC assistance, will help the plan avoid insolvency and pay benefits to participants." (Pension Benefit Guaranty Corporation [PBGC])
[Guidance Overview] Understanding ASOP No. 51, the Assessment and Disclosure of Pension Plan Risk (PDF)
"The ASOP requires the actuary to identify risks that may reasonably be anticipated to significantly affect the pension plan's future financial condition.... In addition to identifying the risks, the actuary is required to assess the identified risks on the plan's future financial condition.... [ASOP 51] does not require the actuary to evaluate the ability or willingness of the plan sponsor or other contributing entity to make contributions to the plan when due." (GRS)
Atrium Health Accused of Cheating Staffers on Health, Pension Benefits
"Atrium employs more than 65,000 people across three states. The lawsuit alleges that Atrium has cheated those employees by skirting ERISA laws, which require employers to set aside minimum amounts to cover pensions. Atrium accomplished this by falsely claiming it is a governmental agency, according to the lawsuit." (Modern Healthcare Online; free registration required)
[Official Guidance] Text of IRS Notice 2018-86: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for November 2018 (PDF)
"This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Section 417(e)(3), and the 24-month average segment rates under Section 430(h)(2) ... In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under Section 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate under Section 431(c)(6)(E)(ii)(I)." (Internal Revenue Service [IRS])
Should Corporate Pensions Invest in Risky Assets?
"[The authors] show that the investment risk sharing under typical DB plans is inefficient, and may cause DB plans to take more risk than what employees will choose for their DC plans. Further, by switching from DB plans to DC plans, firms may substantially reduce their overall pension funding costs without reducing employees' utility." (Wei Li, Tong Yao, and Jie Ying, Via SSRN)
Equity Protection -- Is Now the Right Time?
"[To] contractually protect a portfolio of US stocks against market falls of up to 25% over a three year horizon is about 3.6% of the investment paid up front, or 1.2% p.a. An alternative strategy could be to pay zero premium for the same protection and instead agree to sacrifice returns above 26% over the same three year horizon. Both of these strategies may be especially attractive to asset owners looking to lock in current equity market levels ... In particular, frozen pension plans may not need the market to rise 26% or more in order to meet their funding objectives." (River and Mercantile Solutions)
[Official Guidance] PBGC Annual Report 2018: Single-Employer Program Healthy, Multiemployer Program Ailing
"The sound financial condition of our insurance programs, Single-Employer and Multiemployer, is vital for us to meet our mission. This year's report shows that the financial condition of these two programs remains in stark contrast. The financial status of the Single-Employer Program shows continuous improvement and reached a positive net position this year. However, the Multiemployer Program remains in deep deficit and we project that under current law it will run out of funds within the next several years." (Pension Benefit Guaranty Corporation [PBGC])
The Frozen Plan Equation -- Don't Forget the Denominator
"In this period of rising interest rates, managers of frozen plans will want to be sure their hedge ratio is consistent with both their capital market views and their investment policy, rather than a residual of past allocations.... By planning ahead and anticipating the likely future development of the fund value, plans can make appropriately sized commitments to illiquid assets and avoid overallocation a few years down the road--a condition that can be difficult to remedy." (Russell Investments)
Analysis Says Multiemployer Loan Program Will Not Help All
"The loan program idea introduced in legislation earlier this year is considered a way for some critically underfunded plans to extend projected insolvency dates and reduce the risk to the PBGC.... The analysis used 500 trials with asset returns varied stochastically to model plans projected to become insolvent within 30 years. According to the analysis, the average total number of participants in plans projected to become insolvent is 3.1 million in the baseline scenario, and 2 million if the loan program is implemented." (Pensions & Investments)
QDIAs, New Mortality Table, and Distributions as a Compliance Target
"In October 2018, the Society of Actuaries published its new Mortality Improvement Scale MP-2018, showing mortality improvement rates that are 'slightly lower than the corresponding Scale MP-2017 rates.' ... Presumably, IRS will not take into account the new SOA MP-2018 scale until sometime later this year or next, for purposes of 2020 valuations.... Plan distributions are a 2019 IRS 'compliance' target." (October Three Consulting)
[Official Guidance] Text of PBGC Interest Rate Update for Benefits Payable in Terminated Single-Employer Plans, December 2018
"The December 2018 interest assumptions under the benefit payments regulation will be 1.50 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. In comparison with the interest assumptions in effect for November 2018, these assumptions represent an increase of 0.25% in the immediate rate and are otherwise unchanged." (Pension Benefit Guaranty Corporation [PBGC])
Whither the American Pension?
"The sudden erosion of pension benefits for 1,100 former employees of the old St. Clare's Hospital in Schenectady is a scenario that isn't supposed to happen.... [ERISA] contained a religious exemption that was later expanded to hospitals operated by religious groups, and St. Clare's took advantage of that.... But what about the rest of America? Two generations of American workers increasingly don't have to worry about pension plan failures because fewer and fewer workplaces offer pensions." (The Daily Gazette)
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