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Actuarial - funding of pensions


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U.S. Life Expectancy Is Not Declining for All Age Groups.
"Shorter life expectancy (higher mortality) translates into reduced costs for pension plans.... In fact, the recent mortality rates observed for the retired population continue to support expected improvements in life expectancy for this group. Therefore, it is important for actuaries of multiemployer plans not to reverse their expectations for mortality improvement in response to the latest data. As additional experience emerges, there may be refinements necessary in the actuaries' assumptions for pension plans, but they should be based on longer-term trends." (Segal Consulting)
[Official Guidance] Text of PBGC Interest Rate Update for Benefits Payable in Terminated Single-Employer Plans, March 2018
"The March 2018 interest assumptions under the benefit payments regulation will be 0.75 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 February 2018, these assumptions are unchanged." (Pension Benefit Guaranty Corporation [PBGC])
Corporate Pensions' $61 Billion Funding Gain in January May Cushion Early February Market Slide (PDF)
"As of January 31, the funded ratio rose to 87.2%, up from 84.1% at the end of December. January's impressive funded status improvement was greater than that seen in any of the prior months of 2017. In fact, the last time we had such a stellar funded status gain was back in November of 2016 when the pension deficit improved by $74 billion." (Milliman)
[Official Guidance] Text of IRS Notice 2018-16: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for February 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])
California Cities' Pension Bills May Rise with CalPERS Move
"[CalPERS] is advancing a staff recommendation that would shorten the amortization period for new pension liabilities from 30 years to 20. That would boost the system's funded ratio, require localities to pay off the debt sooner and allow the pension to recover faster from market downturns... The ramped up schedule ... would make market losses felt more swiftly by local governments and require them to pay more into the retirement fund in at least the first few years." (Bloomberg)
Budget Bill Establishes Joint Committee to Address Solvency of Multiemployer Plans
"Even if the select committee is able to agree on a solution to the multiemployer program, there is still a long and difficult process before any bill can be enacted. Thus, it will be critical for members to hear from affected individuals and families. The cost to the Federal government may be a factor in any relief that is provided." (Cheiron)
[Official Guidance] Text of IRS Notice of Proposed Rulemaking: Eliminating Unnecessary Tax Regulations
67 pages. "This notice ... proposes to streamline IRS regulations by removing 298 regulations that are no longer necessary because they do not have any current or future applicability under the Internal Revenue Code and by amending 79 regulations to reflect the proposed removal of the 298 regulations.... Written or electronic comments and requests for a public hearing must be received by May 14, 2018." (Internal Revenue Service [IRS])
Funded Status Improved for Largest Corporate Pension Plans in 2017
"The projected funded status of pension plans sponsored by the nation's largest corporations realized modest gains in 2017, rising from 81% to 83%.... These companies' estimated pension deficit declined by $25 billion, dropping from $317 billion at year-end 2016 to $292 billion by year-end 2017." (Willis Towers Watson)
When Do CalPERS Rates Become 'Unsustainable'?
"The ability to absorb rising pension costs varies from city to city ... but one thing unsustainable for all is the erosion of basic services.... [U]ncertainty causes reluctance to fully staff police, fire departments, and public works maintenance. As discretionary services such as libraries, parks and recreation are threatened, long-term commitments are less likely. Though the economy is growing and unemployment is low, cities are forced to make tough budget decisions." (Calpensions)
How Tax Reform Could Influence Defined Benefit Funding Decisions in 2018
"The timing of the Tax Cuts and Jobs Act presents many sponsors with an immediate opportunity to make a pension contribution in 2018 and obtain a deduction at the higher 2017 tax rate. For companies with a calendar year tax and plan year, they have until September 15, 2018 to make this contribution decision. While this is an attractive incentive to speed up contributions, sponsors considering this option will need to give serious thought to how it will impact their broader pension financial management strategy." (Willis Towers Watson)
[Official Guidance] Text of PBGC Request for Public Comments on Proposed Changes to Survey of Nonparticipating Single Premium Group Annuity Rates
"PBGC gathers pricing data from insurance companies that are providing annuity contracts to terminating pension plans through a quarterly 'Survey of Nonparticipating Single Premium Group Annuity Rates.' The American Council of Life Insurers (ACLI) distributes the survey and provides PBGC with 'blind' data ... PBGC also uses the information from the survey in determining the interest rates it uses to value benefits payable to participants and beneficiaries in PBGC-trusteed plans for purposes of PBGC's financial statements. PBGC is proposing several changes to the survey distributed by ACLI[.]" (Pension Benefit Guaranty Corporation [PBGC])
Little-Known Pension De-Risking Spinoff/Termination Approach Can Lower PBGC Premiums
"The special de-risking strategy ... allows the plan sponsor to reap the benefit of lower PBGC premiums in the same year the de-risking strategy is implemented.... The strategy is to: [1] Identify the group of participants to include in a de-risking strategy ... [2] Spin off all the other participants into a new plan. The original plan will then be terminated ... This spin-off and then termination of the original plan will, if done properly, reduce the PBGC premium in the current plan year." (Findley Davies | BPS&M)
FAS87 ASC715 Discount Rates and Moody's Rates, Updated January 2018
An unofficial monthly report, as of Jan. 31, 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)
2017 NCPERS Public Retirement Systems Study (PDF)
39 pages. "The market value of fund assets now exceed the actuarial value of assets for the 2017 respondents ... [A]ll responding funds report the total cost of administering their funds and paying investment managers is 55 basis points.... [F]unds that participated in both 2016 and 2017 show a drop to 52 basis points.... The average investment assumption is 7.5 percent.... [E]mployer contribution rates have risen from 18 percent of fund income in 2016 to 22 percent of fund income." (National Conference on Public Employee Retirement Systems [NCPERS])
U.S. Multiemployer Pension Plan Contribution Indices, Updated Through 2015 (PDF)
"In 2015, more plans received sufficient contributions to maintain their unfunded liabilities as measured with funding discount rates -- 78% in 2015 compared with 76% in 2014. Also, more plans met a 15-year funding pace -- 55% in 2015, up from 50% in 2014.... 22% of plans received in sufficient contributions to maintain existing unfunded liabilities computed on the same basis, down from about 26% for 2014.... Aggregate unfunded liabilities increased slightly from about $129 billion for 2014 to about $133 billion for 2015, when measured with the actuarial discount rates, cost and asset methods used for funding purposes." (Society of Actuaries)
U.S. Multiemployer Pension Plan Withdrawals, 2009-2015 (PDF)
"On average over 2009-2015, 1.2% of all participating employers withdrew annually, affecting 18% of plans which covered 63% of all participants. In 2015, 0.8% of all employers withdrew, affecting 15% of plans which covered 63% of all participants. Based on a partial year of data for 2016, 1.3% of all employers withdrew, affecting 19% of plans that covered 67% of all participants.... While over half of plans' assessed withdrawal liabilities were less than one-tenth of 1% (0.001%) of plan liabilities, a small number of plans saw assessed withdrawal liabilities of more than 10% of plan liabilities." (Society of Actuaries)
U.S. Multiemployer Pension Plan Stress Metrics: Previous Benefit Cost and Previous Benefit Cost Ratio (PDF)
"Using funding discount rates, the median [Previous Benefit Cost (PBC)] was -$621 in 1999, indicating a small funding 'surplus' rather than an unfunded liability.... Using lower Current Liability discount rates, median PBCs generally increased since 2009 -- from $8,004 in 2009 to $11,271 in 2015, almost five times its funding discount rate equivalent ... Using funding discount rates, the median PBCR was 0% in 1999, indicating no unfunded liability. It peaked in 2009 at 61% and has declined to 54% in 2015.... Since 2009, annualized costs of unfunded liabilities outweigh the cost of current participants' benefit accruals for over half of plans." (Society of Actuaries)
U.S. Single Employer Pension Plan Contribution Indices, 2009-2015 (PDF)
"For 2015, about 11% of plans had an unfunded liability for 2015 as computed using the smoothed corporate bond rates allowed under current law to discount liabilities and compared with the market value of assets.... Preliminary results for 2016 show an increase in unfunded liabilities -- roughly 27% of plans had unfunded liabilities, compared with 11% for 2015 ... About 25% of plans contributed at least enough to maintain the unfunded liability, while the remaining 59% fell short." (Society of Actuaries)
Pension Finance Update, January 2018
"2018 started out with a bang for pension sponsors, with both stock markets and interest rates moving higher, producing the best month for pension finance in almost three years. Both model pension plans ... were up last month: Plan A gained 5%, while Plan B gained more than 1%:" (October Three Consulting)
[Opinion] California Government Pension Contributions Required to Double by 2024 -- Best Case
"When assessing the impact of a nearly $30 billion hike in pension contributions between now and 2024, it's important to note that these projected payments do not include contributions collected from state and local government employees via payroll withholding.... Why are the employees only paying 25% of the cost for their benefit? Didn't the PEPRA reform of 2012 put them on track to pay 50% of the cost of their pensions?" (California Policy Center)
DB Funding and 2017 Tax Planning
"If the sponsor contributes that $100 million for the 2017 year, it reduces its 2017 taxes by $35 million; if it contributes that $100 million for a later year, it reduces its taxes for that later year by $21 million. Making that contribution for 2017 nets the sponsor $14 million in tax savings.... As a general matter, contributions 'for' 2017 will reduce VRPs for 2018, and fully funding plan liabilities will eliminate them." (October Three Consulting)
Survey Results: Multiemployer Pension Plan Sponsors
"Nearly half (44%) of those polled plans' current funded status is 'endangered' or worse. Trustees with plans currently in the red zone status are not entirely confident the plan will meet the targets in its rehabilitation plan.... 62% of trustees polled are increasing contributions to alternative investment classes in an effort to improve overall health of the plan" (SEI)
Illinois Ponders Pension Fund Moonshot: A $107 Billion Bond Sale
"Lawmakers in Illinois are so desperate to shore up the state's massively underfunded retirement system that they're willing to entertain an eye-popping wager: Borrowing $107 billion and letting it ride in the financial markets....[T]he State Universities Annuitants Association... [proposes Illinois] issue the bonds this year to get its retirement system nearly fully funded, assuming that the state can make more on its investments than it will pay in interest." (Bloomberg)
Alcoa to Freeze U.S., Canada DB Plans by 2021
"Alcoa said it was making the changes to its defined benefit pension plans, and to other post-employment benefits, in a move to strengthen the company's balance sheet by reducing its liabilities. The company said that effective Jan. 1, 2021, salaried employees in the US and Canada will no longer accrue retirement benefits for future service under defined benefit pension plans. It added that the US and Canada account for Alcoa's largest portion of liabilities for pension plans and other post-employment benefits." (Chief Investment Officer [CIO])
Quarterly Survey of Public Pensions for Q3 2017
"For the 100 largest public-employee pension systems in the country, assets (cash and investments) totaled $3,691.1 billion in the third quarter of 2017, increasing by 2.8 percent from the 2017 second-quarter level of $3,590.7 billion. Compared to the same quarter in 2016, assets for these major public-pension systems increased 9.0 percent from $3,386.4 billion." (U.S. Census Bureau)
DB Sponsors: Consider Accelerating Contributions for 2017 Plan Year Amid Tax Reform
"[Consider] a sponsoring company having $100 million in cash that it intends to contribute to the pension plan over the next few years, starting with 2018. Assuming a new, lowered 21% tax rate, this roughly would mean they could reduce their tax burden by $21 million over that time period ... But if the company accelerated those contributions to the plan to be attributable to 2017, under a 35% tax rate, then the reduction in tax could be $35 million, a $14 million tax savings." (HR Daily Advisor)
Puerto Rico Catholic Schools' Pension Plan Files for Bankruptcy
"The plan filed a petition for reorganization on Jan. 11 under Chapter 11 of the bankruptcy code in the U.S. Bankruptcy Court for the District of Puerto Rico. The plan has an estimated $10 million in assets and $10 million in liabilities, according to court documents. The filing comes one year after a federal judge in Puerto Rico declined to dismiss a proposed class action by teachers who challenged the plan trustees' decision to treat the plan as a 'church plan.' " (Bloomberg BNA)
Ascension Health Gets OK for $29.5M Deal to End ERISA Suit
"The settlement requires Ascension to guarantee $29.5 million of benefits to class members in the event that trust assets in the plan dip below that number. Judge Feinerman noted that the settlement came after the Supreme Court issued its decision in Advocate Health Care Network v. Stapleton, which extended ERISA's 'church plan' exemption to any benefit plan maintained by a church affiliate even if it wasn't originally established by a church." (Cohen Milstein)
Multiemployer Plans: Their Current Circumstances in Historical Context (PDF)
88 pages. "As of September 2017, the Treasury has approved only three of the 15 benefit-cut requests submitted ... [F]our applications still remain under review. So, while the ultimate effectiveness of MPRA still remains to be seen, it is clear that other solutions must be explored to meet the multiemployer challenge ... [T]here are 11 relatively large critical plans -- covering about 86,000 members -- that could become 'critical-and-declining' in the near term. Early action that focuses on some of these indicators might be able to stabilize other plans heading for trouble." [Sept. 29, 2017; posted on EBSA website Jan. 16, 2018] (IMPAQ International, for Employee Benefits Security Administration [EBSA], U.S. Department of Labor [DOL])
Second Application for Approval of a Proposed Suspension of Benefits Under Ironworkers Local Union 16 Pension Fund
"The proposed effective date for the benefit suspension is October 1, 2018.... The proposed suspension [provides] for different treatment of participants and beneficiaries ... The proposed reduction eliminates the thirteenth check for all pensioners, surviving spouses and beneficiaries who are receiving a thirteenth check, with the last such check to be issued in January 2018." [Submitted Dec. 28, 2017; posted on Treasury website Jan. 16, 2018; published in Federal Register Jan. 25, 2018] (U.S. Department of the Treasury)
Alaska Ironworkers Pension Plan, Second Application for Benefit Suspension or Reduction
"This application proposes that 26.5% of the participant's (or beneficiary's) benefit earned as of July 1, 2016 be suspended." [Submitted Dec. 19, 2017; posted on Treasury website Jan. 10, 2018; published in Federal Register on Jan. 18, 2018] (U.S. Department of the Treasury)
California Governor Brown Goes to Court to Finish Pension Reforms
"[K]ey parts of a pension reform Brown pushed through the Legislature six years ago, which extended retirement ages and capped pensions, were limited to new hires who have no vested right to the benefits cut to reduce costs.... [T]he Brown reform provides little immediate relief for struggling pension systems. Significant savings could take decades because key parts only apply to employees hired after the reform took effect on Jan. 1, 2013." (Calpensions)
U.S. Population Mortality Observations, Updated with 2016 Experience (PDF)
55 pages. "The Society of Actuaries has developed this report to provide insights on the historical levels and emerging trends in U.S. population mortality.... The overall age adjusted mortality rate (both genders) from all causes of death decreased 0.6% in 2016.... Mortality improvement in older age groups offset large mortality increases, mostly due to external causes, in middle age groups.... The rate of overall mortality improvement has slowed in the most recent five years." (Society of Actuaries)
[Opinion] Garden State Crowd-Out: How New Jersey's Pension Crisis Threatens the State Budget (PDF)
16 pages. "Since 2014, it has become clear that New Jersey needs a new strategy to address its pension problems.... Absent some unexpectedly robust acceleration of the economy, it is highly unlikely that New Jersey will generate enough new revenues to meet its pension commitments without severely hobbling the rest of the state's budget. At the same time, allowing its pension system to continue to accumulate debt by not contributing adequately to it will push New Jersey toward a potentially catastrophic failure of its government pensions." (Manhattan Institute for Policy Research)
New Tax Law Means Fighting Over Underfunded State Pension Plans Is About to Get Worse
"Unless states can implement effective ways to circumvent the SALT restriction, they will face much higher political barriers to meeting their unfunded benefit obligations through increased tax revenues. Instead, states will be forced to severely cut spending on public services and/or adopt major reforms of their benefit plans.... [A table] summarizes the situation for each of four states with the highest unfunded liabilities relative to their revenues in 2016 -- Illinois, New Jersey, Connecticut and Kentucky." (MarketWatch)
[Official Guidance] Text of PBGC Interest Rate Update for Benefits Payable in Terminated Single-Employer Plans, February 2018
"The February 2018 interest assumptions under the benefit payments regulation will be 0.75 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 2018, these assumptions are unchanged." (Pension Benefit Guaranty Corporation [PBGC])
[Official Guidance] Text of IRS Notice 2018-11: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for January 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])
High Hurdle for Pension Cuts in New California Court Ruling
"[A California appeals court] ruled that the pensions of current employees can be cut without providing an offsetting new benefit, but only if there is 'compelling evidence' that a reduction is needed for the successful operation of the retirement system. The new ruling in three consolidated county cases is a much higher hurdle than an appellate ruling in a well-publicized Marin County case two years ago that said pensions can be cut if the employee is not deprived of a 'reasonable' pension." [Alameda County Deputy Sherriff's Ass'n v. Alameda County Employees' Retirement Ass'n, No. A141913 (Cal. Ct. App. Jan. 8, 2018)] (Calpensions)
New Jersey Governor Signs Bill Requiring Stress Tests, Fee Transparency at State Pension Funds
"The legislation will affect five of the seven pension systems in the $77.5 billion New Jersey Pension Fund ... The stress-test goal is to 'assess how well the investments of each of the state-administered retirement systems are likely to perform in periods when market returns are significantly above or below baseline assumed returns'[.]" (Pensions & Investments)
Accumulating Tax Deferrals in a Small-Employer DB Plan (PDF)
"[An illustration] shows how contributions to a defined benefit pension plan produce a net financial gain for the business owners with conditions that typically apply for a closely held business.... The employee group consists of two owners, both age 50s, with 10 non-owner employees having a wide range of compensation, past service, ages, and other factors.... The business owners hold $399,044 that otherwise would have been taken from their Form W-2 Wages or Earned Incom had they not diverted these amounts through a tax qualified defined benefit pension plan; and, they retain an extra $125,000 each year to fund pension benefits for the employee group including the owners." (H.C. Foster & Company)
Financial Health of Largest U.S. Corporate Pension Plans Improved
"[T]he aggregate pension funded status is estimated to be 83% at the end of 2017, compared with 81% at the end of 2016.... [T]he pension deficit is projected to have decreased to $292 billion at the end of 2017, compared with a $317 billion deficit at the end of 2016." (Willis Towers Watson)
What Could Tax Reform Mean for DB Plan Sponsors?
"While the bill makes no changes directly to DB minimum funding or maximum deductibility laws, it could create an additional incentive for DB sponsors to accelerate contributions attributable to the 2017 plan year. This is most applicable to corporate DB sponsors seeking to maximize the tax effectiveness of their contributions." (Russell Investments)
Corporate Pension Plans: Is It Time to Play Defense?
"While the bull market may continue, this could be an ideal time for employers to consider reducing risk in their pension plans ... However, reducing the equity allocation may not be acceptable from a total portfolio expected return standpoint. Enter: defensive equity strategies.... This approach can be particularly useful during the most difficult times for funded status, that is when both equity markets and interest rates are falling, making it a potentially useful de-risking strategy." (NEPC)
Pension Finance Update, December 2017
"Stock markets enjoyed their best year since 2013, but long-term interest rates pushed remorselessly lower and credit spreads narrowed to lows not seen since before the 2008 financial crisis, driving up pension liabilities.... [T]raditional Plan A lost 1% in December but ended the year more than 3% ahead, while the more conservative Plan B dropped a fraction of 1% last month, ending 2017 up more than 1%." (October Three Consulting)
The Funded Status of Local Pensions Inches Closer to States (PDF)
14 pages. "[As] of 2015, local plans have an aggregate funded ratio of 69.9%, relative to 73.9% for state plans -- a difference that has been closing in recent years. Also, these local plans contributed 83% of their required contributions in 2015, relative to 76% for state plans ... [T]hese variances between state and local plans are possibly linked to differences in aggregate investment approaches and funding methods, respectively." (Center for State & Local Government Excellence)
Case Study: DB Plan Due Diligence in Mergers and Acquisitions
"[A]nalysis revealed that the divesting plan sponsor had undervalued the DB plan liabilities by at least 60% of the value proposed in the purchase agreement presented to ... the buyer.... [T]here were four main areas of concern: the mortality assumption, demographic assumptions, terminal funding upon retirement, and associated investment risk." (Milliman)
Pension Rights Center: The Year in Review (PDF)
"On November 16, Senator Sherrod Brown (D-OH) and Congress Richard Neal (D-MA) introduced comprehensive legislation to address the multiemployer pension crisis.... [T]he Pension Rights Center celebrated our 41st anniversary ... PRC staff fielded more than 1,600 calls from participants with pension and retirement savings plan problems in 49 states ... [PRC's] recoupment initiative ... is bringing together attorneys who represent plans and those who represent retirees to search for common ground on new rules to address this critically important problem.... [PRC] published fact sheets and blogs posts on the importance of pensions." (Pension Rights Center)
Splitting Pension Plans Can Reduce PBGC Variable Rate Premiums
"[This article considers] a strategy for reducing PBGC variable-rate premiums -- the split-up of a plan ... into [one] plan that covers participants subject to the variable-rate premium headcount cap ... and a [second] plan that covers all other participants. Such a strategy may reduce PBGC variable-rate premiums ... [1] it can be used to maximize the effect of the headcount cap ... [2] it may allow the sponsor to make contributions that reduce variable-rate premiums where the headcount cap would otherwise prevent that result." (October Three Consulting)
Puerto Rico Ordered to Make Interest Payments on Pension Bonds
"Puerto Rico must keep paying pension bondholders while the judge overseeing the island's bankruptcy case decides whether the investors also have a right to retirement contributions made to government workers. Puerto Rico, which has about $3 billion of pension bonds outstanding, owes about $13.9 million each month in interest to holders of the debt." (Bloomberg)
[Official Guidance] Text of PBGC Final Regs: Allocation of Assets in Single-Employer Plans: Valuation of Benefits and Assets; Expected Retirement Age
"This rule amends the [PBGC's] regulation on Allocation of Assets in Single-Employer Plans by substituting a new table for determining expected retirement ages for participants in pension plans undergoing distress or involuntary termination with valuation dates falling in 2018. This table is needed to compute the value of early retirement benefits and, thus, the total value of benefits under a plan.... This rule is effective January 1, 2018." (Pension Benefit Guaranty Corporation [PBGC])
Risk Transfers Increasingly Used for Modest Pension Payouts
"[C]ash-strapped companies are focusing their efforts where they have the most impact: purchasing annuities in order to transfer to an insurer the companies' obligations to retirees who will receive modest benefits.... Through the first three quarters of this year, pension plans purchased $12 billion of annuities, but [one consultant] expects the total for the year to come in around $20 billion." (Treasury & Risk)
[Official Guidance] Text of PBGC Statement of Regulatory and Deregulatory Priorities, Along with Fall 2017 Regulatory Agenda
"A major focus of PBGC's current efforts is to finalize rules to simplify and revise the existing missing participants program to help connect more participants with their lost retirement savings. As authorized by the Pension Protection Act of 2006 (PPA), the revised program will cover terminating defined contribution plans, defined benefit plans of small professional-service employers that are not covered by title IV of ERISA, and multiemployer plans, in addition to terminating single-employer defined benefit plans." [Also online: Fall 2017 Proposed and Final Rules List; and Fall 2017 Long-Term Actions] (Pension Benefit Guaranty Corporation [PBGC])
IRS Releases 2019 Mortality Tables for ERISA Plans
"IRS has now adopted the factors in that update for the 2019 applicable mortality rates, using the same methodology as in 2018 (with MP-2016) and the same '2006' RP-2014 base tables. This should reduce 2019 valuation present values (if not using a plan-specific table) and lump sum factors (as well as factors for other accelerated forms) consistent with the changes shown in the MP-2017 report." (Conduent)
PBGC Fees Rise for Underfunded Pensions
"GE's fees surged more than sixfold, to about $238 million, in 2017 from 2012, according to the PBGC data ... Boeing's bill was $151.7 million, about four times what it paid in 2014.... GE, whose pension fund is short by about $31 billion, said in November it would borrow $6 billion to fund its plan. After Boeing's fund fell short by about $20 billion at the end of 2016, the company said in July that it would add $3.5 billion of its shares to a scheduled $500 million pension contribution." (Bloomberg)
[Official Guidance] Text of IRS Notice 2018-02: Updated Mortality Improvement Rates and Static Mortality Tables for Defined Benefit Pension Plans for 2019 (PDF)
"These updated mortality improvement rates and static tables ... apply for purposes of calculating the funding target and other items for valuation dates occurring during calendar year 2019. This notice also includes a modified unisex version of the mortality tables for use in determining minimum present value ... for distributions with annuity starting dates that occur during stability periods beginning in the 2019 calendar year." (Internal Revenue Service [IRS])
[Official Guidance] Text of PBGC Interest Rate Update for Benefits Payable in Terminated Single-Employer Plans, January and First Quarter 2018
"The first quarter 2018 interest assumptions under the allocation regulation will be 2.39 percent for the first 20 years following the valuation date and 2.60 percent thereafter. In comparison with the interest assumptions in effect for the fourth quarter of 2017, this represents no change in the select period ..., an increase of 0.05 percent in the select rate, and a decrease of 0.03 percent in the ultimate rate, the final rate. The January 2018 interest assumptions under the benefit payments regulation will be 0.75 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 2017, these assumptions are unchanged." (Pension Benefit Guaranty Corporation [PBGC])
[Official Guidance] Text of Treasury Department Approval of Application to Reduce Benefits Under International Association of Machinists Motor City Pension Plan (PDF)
"Because a majority of voters identified as eligible by the Plan did not vote to reject the benefit reduction, the benefit reduction may go into effect. Treasury, in consultation with DOL and PBGC, has issued a final authorization to reduce benefits under the Plan as described in the Application, effective January 1, 2018, subject to the conditions described [in this letter]." (U.S. Department of the Treasury)
Report Says CalPERS Investments Too Focused on Environmental and Social Activism
"The American Council for Capital Formation (ACCF) said CalPERS board members have overemphasized what are called Environmental, Social and Governance (ESG) investments -- and the sluggish returns on those investments are dragging down the pension fund's bottom line.... The report also questioned the pension board's plans to increase climate-related shareholder proposals from 12 to 17. The report also takes aim at individual board members." (The San Diego Union-Tribune)
Recent Data on the Funded Status of Multiemployer Pension Plans (PDF)
"A majority of plans are in the green zone ... Most plans have a funded percentage above 70% and many are fully funded ... In the construction industry, a greater percentage of plans with fewer than 1,000 participants are in the red zone than larger plans ... Yet the industry as a whole remains overwhelmingly healthy with very few [critical and declining] plans -- only six in 2017." (Segal Consulting)
[Official Guidance] Text of IRS Notice 2017-76: Weighted Average Interest Rates, Yield Curves, and Segment Rates Applicable for December 2017 (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])

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