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News

All News > Funding of DB Plans

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De-Risking Opportunities in a Rising Interest Rate Environment
Milliman Link to more items from this source
Sept. 30, 2022

"An increase of 100 basis points (bps) in interest rates reduces pension liabilities on average by 12% to 15%.... Looking at year-to-date movements through July 31, 2022 ... pension liabilities are down nearly 20%.... This article explores some strategies that plan sponsors should consider now, even if a plan's funding situation is not ideal, to avoid missing out on what might be a 'golden' opportunity."

Tags: Funding of DB Plans

Deterministic vs. Stochastic Models: A Guide to Forecasting for Pension Plan Sponsors
Milliman Link to more items from this source
Sept. 29, 2022

"While both techniques allow a plan sponsor to get a sense of the risk -- that is, the volatility of outputs -- that is otherwise opaque in the traditional single deterministic model, stochastic modeling provides some advantage in that the individual economic scenarios are not manually selected.... Stochastic models are particularly useful in forecasting ... The output of the model will show not only the underlying riskiness of an output variable -- for example, funded status or contribution requirements -- but also how the risks may change over time."

Tags: Funding of DB Plans

How Defined Benefit Plans Have Changed for Municipal Employees (PDF)
Still River Retirement Planning Software, Inc. Link to more items from this source
Sept. 29, 2022

"[In] the 2000s, ... plan features began changing. Some plans, more in tune with the financial risks than most, started cutting back in the 1990s already, or even sooner.... Public plans are now within shouting distance of solvency, if not already there.... This report looks at some of the common ways in which this outcome was achieved, and which were most commonly used, by whom."

Tags: Funding of DB Plans  •  State and Local Government Plans

Union Officials Sue MBTA After Arbitrator Proposes Slashing Pensions of Those Who Retire Before Age 65
The Boston Globe; subscription may be required Link to more items from this source
Sept. 28, 2022

"The MBTA's largest union is challenging an independent arbitrator's decision that would reshape the rules of the authority's $1.66 billion retirement system, including slashing the pensions of those who retire before the age of 65.... As of the end of last year, the fund's unfunded liability hovered at more than $1.3 billion[.]"

Tags: Funding of DB Plans  •  Retirement Plan Design  •  State and Local Government Plans

Plan Sponsors Consider PBGC Premium Strategies
PLANSPONSOR; free registration may be required Link to more items from this source
Sept. 27, 2022

"Plan sponsors using the spot rate will realize the recent rise in interest rates. Plan sponsors using the alternative method may not fully capture the rise in interest rates because the 24-month average will be brought down by the lower interest rates of 2021. So, each calculation can come away with very different rates and resulting premiums."

Tags: Funding of DB Plans  •  PBGC  •  Retirement Plan Investments

Pensions Brace for Private-Equity Losses
The Wall Street Journal; subscription may be required Link to more items from this source
Sept. 26, 2022

"Public pension funds are already reporting big losses in 2022. Things are likely to get uglier. That is because the funds, which manage around $5 trillion in retirement savings for the nation's teachers, firefighters and other public workers, haven't yet factored in second-quarter returns on private equity and other illiquid investments."

Tags: Funding of DB Plans  •  Retirement Plan Investments

Public Pension Funded Ratio Dips to 75% as August Market Losses Erode July's Gains
Milliman Link to more items from this source
Sept. 23, 2022

"During August, the Milliman 100 PPFI funded ratio declined from 77.3% at the end of July to 75.0% as of August 31. Public plans saw, in aggregate, investment losses of 2.6% for the month, which erased much of the short-term recovery experienced in July. Individual plans' estimated returns ranged from -4.1% to -0.9% for the period. The combined plans lost market value of approximately $118 billion, on top of a net negative cash flow of approximately $8 billion."

Tags: Funding of DB Plans  •  State and Local Government Plans

Text of IRS Notice 2022-40: Weighted Average Interest Rates, Yield Curves, and Segment Rates for September 2022 (PDF)
Internal Revenue Service [IRS] Link to more items from this source
[Official Guidance]
Sept. 20, 2022

"This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates ... and the 24-month average segment rates ... [as well as] the interest rate on 30-year Treasury securities ... as in effect for plan years beginning before 2008 and the 30-year Treasury weighted average rate[.]"

Tags: ARPA  •  Funding of DB Plans  •  Retirement Plan Administration

Milliman Pension Buyout Index, September 2022
Milliman Link to more items from this source
Sept. 20, 2022

"During August 2022, average accounting discount rates increased by 43 basis points (bps), while competitive annuity purchase rates increased by 58 bps. This caused the estimated competitive retiree buyout cost as a percentage of accounting liability to decrease from 98.0% to 96.9%."

Tags: Funding of DB Plans  •  Retirement Plan Investment Costs

Annuity Purchase Update, September 2022
October Three Consulting Link to more items from this source
Sept. 19, 2022

"The average Annuity Purchase Interest rates jumped this past month, with the average duration 7 rate at 4.24% and average duration 15 rate at 4.25%.... Annuity Purchase costs ... dropped significantly this past month, the lowest ... observed year to date. Average annuity purchase rates have increased over 240 basis points in the last twelve months."

Tags: Funding of DB Plans  •  Retirement Plan Investments

Segal Blend Explained
Segal Link to more items from this source
Sept. 16, 2022

"This article discusses: [1] The origins of the Segal Blend; [2] The purpose of withdrawal liability; [3] What's blended in Segal Blend; [4] The impact of the Segal Blend; [5] Arbitration and litigation about the Segal Blend; [6] The future for the Segal Blend."

Tags: Funding of DB Plans  •  Multiemployer Plans

Editor's Pick Rising Interest Rates Present Lump Sum Opportunities for DB Plans
Segal Link to more items from this source
Sept. 16, 2022

"Cashing out participants from the plan has several cost and risk mitigation advantages, including reducing PBGC premiums and shrinking the risk profile of the plan. Lower lump-sum values may present plan sponsors with opportunities to cash out more participants than in a typical year. Here are some opportunities to explore."

Tags: Funding of DB Plans  •  Retirement Plan Design

School Districts Spend Up to a Third of Their Payroll on Pensions: What That Means for Budgets
Education Week Link to more items from this source
Sept. 15, 2022

"The gradually increasing burden of retirement costs on districts isn't a new phenomenon. But the latest analysis is a good reminder of how pensions act as the third rail of district and state school finance -- even if the average educator, parent, and principal doesn't know a ton about their complexities."

Tags: Funding of DB Plans  •  State and Local Government Plans

Text of PBGC Interest Rate Assumptions for Valuing Benefits in Single-Employer Plans, Fourth Quarter 2022
Pension Benefit Guaranty Corporation [PBGC] Link to more items from this source
[Official Guidance]
Sept. 14, 2022

"The fourth quarter 2022 interest assumptions will be 3.90 percent for the first 20 years following the valuation date and 3.65 percent thereafter. In comparison with the interest assumptions in effect for the third quarter of 2022, these interest assumptions represent no change in the select period (the period during which the select rate (the initial rate) applies), an increase of 1.09 percent in the select rate, and an increase of 0.71 percent in the ultimate rate (the final rate)."

Tags: Funding of DB Plans

What Employers Contributing to Multiemployer Plans That Receive 'Special Financial Assistance' Need to Know
Fox Rothschild LLP Link to more items from this source
[Guidance Overview]
Sept. 14, 2022

"[The Final Rule] clarifies that a condition on the receipt of SFA is that a [multiemployer plan] may not accept a collective bargaining agreement that allows for a reduction in the contribution rate, or a change in the basis on which the contributions are made that would yield a contribution obligation reduction, from what was set forth in a collective bargaining agreement as of March 11, 2021, including agreed-to contribution increases in those agreements."

Tags: Funding of DB Plans  •  Multiemployer Plans

Editor's Pick The 2022 Pension Risk Transfer Market Is Breaking Records. What's Going On?
Milliman Link to more items from this source
Sept. 13, 2022

"Historically, 65 to 75% of PRT transactions occur in the second half of the year, but so far in 2022, Q1 and Q2 have both broken records for PRT activity, with $5.3 billion and $12.5 billion in sales, respectively. This is already 47% of the record $38.1 billion total in 2021. And it does not look like the momentum is expected to slow down. This article will explore the continued surge in the PRT market."

Tags: Funding of DB Plans

PBGC FY 2021 Projections Report (PDF)
Pension Benefit Guaranty Corporation [PBGC] Link to more items from this source
Sept. 12, 2022

63 pages. "PBGC's Multiemployer Program is likely to remain solvent to a point more than 40 years out. This is an improvement over last year's report, in which half of projected scenarios resulted in insolvency by the end of FY 2055. However, both reports show a high degree of uncertainty, with the most pessimistic downside scenarios continuing to show a risk of insolvency in the mid-2030s.... The Single-Employer Program's financial status has evolved from recent deficits to a positive net financial position projected to grow over the next 10 years. None of the projected scenarios result in PBGC's Single-Employer Program running out of money within the next 10 years."

Tags: Funding of DB Plans  •  Multiemployer Plans  •  PBGC

NEPC Pension Monitor, August 2022
NEPC Link to more items from this source
Sept. 12, 2022

"Corporate pension plans saw mixed results in funded status in August amid rising discount rates and falling equities.... Total-return plans outpaced LDI allocated plans due to a lower hedge of rising discount rates as Treasury rates rose and credit spreads were little changed."

Tags: Funding of DB Plans  •  Retirement Plan Investments

Pension Finance Watch, August 2022
Willis Towers Watson Link to more items from this source
Sept. 9, 2022

"The WTW Pension Index declined slightly in August 2022, remaining at a level comparable to last month's, and well above June's. This month's change was due to negative investment returns, almost completely offset by decreases in liabilities. The end-of-August index level of 96.9 reflects a decrease of 0.1% for the month."

Tags: Funding of DB Plans

Corporate Pension Funded Ratio Improves to 106.4% in August Despite Double-Digit Investment Losses Year-To-Date
Milliman Link to more items from this source
Sept. 9, 2022

"During August, the Milliman 100 PFI funded ratio climbed from 104.8% on July 31, 2022, to 106.4% as of August 31. The funded ratio improvement was driven by a 36-basis point increase in the monthly discount rate. The PFI projected benefit obligation (PBO) lessened by $65 billion as discount rates rose from 4.25% to 4.61% for the month. Meanwhile the market value of assets fell by $46 billion because of August's 2.47% investment loss."

Tags: Funding of DB Plans  •  Retirement Plan Investments

Pension Finance Update, August 2022
October Three Consulting Link to more items from this source
Sept. 8, 2022

"Pension finances were mixed during August, as higher interest rates offset the impact of falling stock markets. Both model plans ... were close to even last month: Plan A improved less than 1% and is now up almost 5% for the year, while the more conservative Plan B lost a fraction of 1% in August and is now down 1% through the first eight months of 2022."

Tags: Funding of DB Plans  •  Retirement Plan Investments

Pension Indicator, August 2022
USI Consulting Group and Clearstead Link to more items from this source
Sept. 8, 2022

"Overall, the same lesson that has been mentioned previously this year still holds true: if you are only looking at the asset side of the ledger, you would assume performance is terrible. However, the results here show most plans actually have improved their funded position during 2022 as higher interest rates should reduce pension liabilities."

Tags: Funding of DB Plans  •  Retirement Plan Investments

Evaluating ARPA's Impact, 1 Year Later
PLANSPONSOR; free registration may be required Link to more items from this source
Sept. 8, 2022

"The American Rescue Plan Act of 2021 created funding relief for single-employer defined benefit pension funds by extending the amortization period for shortfalls and stabilizing the interest rates used to calculate their funded level."

Tags: ARPA  •  Funding of DB Plans

FAS87 ASC715 Discount Rates and Moody's Rates, August 31, 2022
BenefitsLink Message Boards Link to more items from this source
Sept. 2, 2022

An unofficial monthly report 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).

Tags: Funding of DB Plans

Measuring UVBs for Variable-Rate Premiums: The Alternative vs. Standard Method Election Due October 15, 2022
October Three Consulting Link to more items from this source
Sept. 1, 2022

"Defined benefit plan sponsors that [1] are currently using the alternative (24-month average) method to determine unfunded vested benefits (UVBs) for purposes of calculating [PBGC] variable-rate premiums, and who [2] have the ability to elect to switch to the standard (spot-rate) method, may want to consider electing to switch to the standard method for 2022 ... While that election will generally not have a significant effect on 2022 variable-rate premiums, it is likely that it will reduce 2023 premiums significantly. And there are some 'pros and cons' to making that election this year."

Tags: Funding of DB Plans  •  PBGC  •  Retirement Plan Administration

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