Trillions of Dollars in Pensions Can Attract and
Repel Insurers By Julie Edde and Katherine Chiglinsky | Bloomberg |
March 29, 2018
The trillions of dollars in
pension liabilities worldwide have underlined different
strategies pursued by insurers, as some look to take on
retirement assets from employers and others are busy offloading
similar risks.
In one camp are firms such as
Prudential Plc, which agreed in March to sell 12 billion pounds
($17 billion) of U.K. annuities. The London-based company isn’t
participating in the pension-derisking market where insurers
offer employers annuity contracts to better manage the risk of
those retirement obligations. On the other side are insurers like
Legal & General Group Plc that are looking to capitalize on
companies’ desire to shed those pension commitments.
“Insurers all have different
requirements for returns on capital,” Steve Keating, managing
director of BCG Pension Risk Consultants Inc., said in a phone
interview. “Sometimes they can achieve that in the pension-risk
transfer business. Others have a better use of capital
elsewhere.”
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BCG at the 2018 Plan Sponsor National Conference
Pension Risk Transfer Options for Qualified and
Non-qualified DB Pension Plans
Amid rising costs and increasing
complexities when managing defined benefit (DB) plans, many plan
sponsors are looking to shed their DB liabilities. Industry
sources will discuss options plan sponsors have for doing so.
Moderator: Michael W. Kozemchak, Managing
Director, Institutional Investment Consulting
Panelists: Marty Menin, Senior Director - Retirement
Solutions Division, Pacific Life
Michael E. Devlin, Principal,
BCG Pension Risk Consultants
David
Hinderstein, Strategic Retirement Group, Inc.
For more information about your PRT Options, contact
BCG Pension Risk
Consultants or call (855) 432-7658 ext. 403
BCG at the 2018 AICPA Employee Benefit Plans
Conference
Stop Paying Unnecessary DB Plan Expenses
DB plan expenses are increasing at
an alarming rate. The Pension Benefit Guarantee Corporation
(PBGC) charges both a fixed premium per person which will
increase to $80 per participant in 2019 (130% increase since
2012) and a variable premium on the amount of under-funding that
will increase to 4.4% in 2019 (a 400% increase since 2013). These
premiums can be reduced or avoided by fully funding the plan and/or
reducing the number of participants. This session will:
· Identify how plan sponsors are
using new strategies to reduce the cost of the plan; and
· Identify strategies to help manage
the funded status to meet their objectives
Speakers
Steve Keating – BCG Penbridge
Russ Proctor
– Pacific Life Insurance Company
Marty Menin
– Pacific Life Insurance Company
For more information about Unnecessary DB Plan
Expenses, contact BCG Pension Risk
Consultants or call (230) 955-1566
An Opportune Time for Funding
By David
Geloran | BCG Pension Risk Consultants | May 2018
Summary
Many pension plan sponsors have
been experiencing relief in their minimum required funding as a
result of highway legislation called “Moving Ahead for Progress
in the 21st Century” (“MAP-21”). With
interest rates having remained at historically low levels for
over a decade, this relief will soon wane. Plans may soon
see an increase in required contributions, even if interest rates
start to rise. Plan sponsors have a limited opportunity to
amplify cost savings by prefunding to take advantage of 2017 tax
rates.
Background
The Pension Protection Act of 2006
(“PPA”) defined the interest rate for minimum funding purposes to
be a 24-month average of high quality corporate bonds. Interest
rates languished at historically low levels for the past decade,
contributing to the pension “perfect storm” – the combination of
the full enactment of PPA, the accounting codification under
ASC-715, the credit crisis, and the great recession. As plan
assets evaporated, the short-term average of a very long period
of low interest rates drove liability valuations higher.
MAP-21 provided relief to plan
sponsors rocked by increasing minimum required contributions and
lower AFTAPs (percent funded). Introducing a second funding rate
(called the “stabilized rate”, equal to 90% of the 25-year
average of high quality corporate bonds), the longer averaging
period provided a higher and more stable average from
year-to-year. The higher of these two rates (the 24 month
average under PPA or the 25-year average under Map-21) are then used
to determine the plan liabilities for minimum funding
purpose.
However, as more years of low
interest rates from today enter the average period, and replace
the higher interest rates from the early 1990’s, this
stabilization rate is starting to provide less relief. The
initial expectation was that bond rates would rebound quickly,
and the greater-of comparison of the PPA and MAP-21 rate would
quickly revert to the PPA rate. Instead, the 25-year average is
steadily dropping annually.
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