What Happens When DB Funding Relief Goes Away?
By Rebecca Moore Editors@ plansponsor com |
December 29, 2016
Defined benefit retirement plan sponsors should plan
now for the future.
The Pension Protection Act of 2006 (PPA) defined
specifically how defined benefit (DB) plans should measure funded
status — using high-quality corporate bond interest rates and a
specific mortality table. It also prescribed a calculation for
minimum required contributions each year, and plan sponsors had
seven years to get their plans fully funded.
However, since the passage of the PPA, there have
been six efforts to give funding relief to DB plan sponsors.
Currently, funding relief is available until 2020.
What happens if no further funding relief is provided?
Jodan Ledford, head of U.S. Solutions at Legal &
General Investment Management America (LGIMA), who is based in
Chicago, notes that while some DB plan sponsors are using the
funding relief, there are several factors which may impact their
funding strategies: an increase in Pension Benefit Guaranty
Corporation (PBGC) premiums that will cost less-funded plans more;
recording deficits on their balance sheets; and the potential
that funding more offers more tax relief on the heels of
potential corporate income tax relief.
For those that use funding relief, assuming the
interest rate environment will stay the same their discount rate
could fall as much as 1.5%, Ledford says. Considering a duration
of 12 or 13 years, they could see a 19% increase in funding
liability, and conceivably will have to contribute more to their
plans annually as a result. Click Here for
full article
IRS Releases Proposed Mortality Tables for DB
Plans
By Javier Simon Editors@ plansponsor.com |
December 29, 2016
These proposed regulations would update the
mortality tables used to determine minimum required contributions
for single-employer plans.
The Internal Revenue Service (IRS) has revealed
proposed regulations regarding mortality tables to be used by
most defined benefit (DB) pension plans. These tables gage the
probability of survival year-by-year for an individual based on
age, gender, and other factors. This data along with actuarial
assumptions is used to calculate the present value of a stream of
expected future benefit payments, for purposes of determining the
minimum funding requirements for a plan. These mortality tables
also can be used to determine the minimum required amount of a
lump-sum distribution from such a plan.
"The proposed regulations would update the
mortality tables used to determine minimum required contributions
for single-employer plans and current liability for multiemployer
plans effective for plan years beginning in 2018," explains
Scott A. Hittner, FSA, partner and chief actuary at October
Three. “The base mortality table would be updated from the
RP-2000 table to the RP-2014 table. Projected mortality
improvements would be based on the MP-2016 scale, updated from
Scale AA.” Click Here for
full article
Corporate Pension Deficits Increased in 2016
By PLANSPONSOR Staff | Editors@
plansponsor.com | January 03, 2017
The aggregate pension funded status for the plans
Willis Towers Watson tracked is estimated to be 80% at the end of
2016, compared with 81% at the end of 2015.
The pension funded status of the nation’s largest
corporate plan sponsors remained essentially unchanged at the end
of 2016 compared with the end of 2015, as lower interest rates,
which push up liabilities, negated positive stock market returns,
according to an analysis by Willis Towers Watson.
The analysis examined pension plan data for the 410
Fortune 1000 companies that sponsor U.S. defined benefit pension
plans and have a December fiscal-year-end date. Results indicate
that the aggregate pension funded status is estimated to be 80%
at the end of 2016, compared with 81% at the end of 2015. The
analysis also found that the pension deficit is projected to have
increased $17 billion to $325 billion at the end of 2016,
compared to a $308 billion deficit at the end of 2015.
According to the analysis, pension plan assets
inched higher in 2016, from $1.30 trillion at the end of 2015 to
an estimated $1.31 trillion at the end of last year. Overall
investment returns are estimated to have averaged 6.7% in 2016,
although returns varied significantly by asset class. Domestic
large-capitalization equities returned 12%, while domestic
small-/mid-capitalization equities earned 17.6%. Aggregate bonds
provided a 2.7% return; long corporate and long government bonds,
typically used in liability-driven investing strategies, earned
10.2% and 1.3%, respectively.
NEXT: The effect of the Trump election, pension
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Longer Lives, Larger Financial Needs
Published In NOVEMBER 2016 | Sponsored
by PACIFIC LIFE
People are living longer than at any other time in
history. But what does that mean for defined benefit (DB) plan
sponsors? Are there ways to help bolster the financial wellness
of employees who might spend decades in retirement? And are
sponsors prepared for the impact of longevity: its effect on
their plan’s financial wellness? PLANSPONSOR discussed these
questions with Russ Proctor and Marty Menin, both Directors of
Institutional Sales at Pacific Life Insurance Company, to
determine what plan sponsors should know about the impact of
longevity.
PS: How long are people living today?
Proctor: When the
subject is retirement planning, the real question is how long do
people think they’re going to live? I hear people approaching
retirement who say they expect to live to age 76 because they
remember hearing that’s the age of life expectancy. However, that
number is a little out of date and—more importantly—that’s from
birth. Once you reach age 65, the Society of Actuaries’ mortality
tables show that males are typically living to age 86 and females
to age 89.
Menin: Especially for
married couples; there’s a 50/50 chance that one spouse will live
to age 94, and a 20% chance one of them will live to 100. Thirty
to 35 years of retirement planning is a long time to plan for and
to be certain that your money will last. Click Here for
full article