From:                                         BCG Pension Risk Consultants <tmccauley@bcgpension.com>

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Subject:                                     The Pension Insider August 2017

 

 

The Pension Insider

 

The Pension Insider is a monthly newsletter developed for individuals who work in the pension arena. The Pension Insider was created to share ideas, success stories, coming events and industry specific articles.

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August 2017- Volume 74, Edition 1

 

 

 

Cost Considerations When Freezing Your DB Plan By Amanda Umpierreze | PLANSPONSOR | July 31, 2017 

Just because a plan is frozen, doesn’t mean fees will go away altogether.

If you purchased a large home when raising a family, would you continue to pay for it once the kids have grown and moved away? For many, it may be worth downsizing to fit a new set of needs and goals. 

That’s the analogy Monica Gallagher, a partner at October Three Consulting, utilizes to describe the work of administering a frozen defined benefit (DB) plan. Just because a plan is frozen doesn’t mean fees will go away altogether, so a reassessment of needs and services is always in order once a DB plan is frozen. 

According to Gallagher, along with Stu Lawrence, national retirement practice leader from Segal, expenses concerning administration of the plan; actuary and accountant tasks; and Pension Benefit Guaranty Corporation (PBGC) premiums are all still responsibilities sponsors must face when freezing their plans. While most employers outsource plan administration, says Gallagher, others team with providers to tame plan data and answer phone calls concerning benefit accruals. Additional services involve employing actuaries and accountants to evaluate liabilities of pension plans, calculate contributions and audit the plan.

Lawrence notes that while auditing a plan may grow slightly easier as a frozen plan decreases in number of participants, costs - for the most part - will remain the same. “The costs haven’t changed. It might be easier to do an audit of those plans, and the fees from the actuarial calculation might go down, but the accountant and actuary will still charge their basic fee,” he says.

Those that entirely terminate their plan - which can only occur if an employer pays out the value to the worker in a single sum, or finds an insurance company to stand in the shoes of the plan via a pension buyout - face no concerns over PBGC fees, as once a plan is terminated, the fees are dropped.

“Once you terminate a plan, and you in effect settle the liabilities, you no longer have to pay PBGC,” says Gallagher. 

According to Lawrence, DB plans can be in one of four stages - ongoing, closed, frozen and terminated. A terminated plan requires that an employer settles the plan obligation with the worker; ongoing plans have participants who are still accumulating benefits as service continues; closed plans, also known as soft-frozen plans, block new participants from entering, yet allow existing employees to resume benefit accrual; and frozen plans strictly disallow all participants from accruing benefits.

“For most, you start with an ongoing plan, you may become a closed plan, a frozen plan, and at some point, you’re going to be a terminated plan,” says Lawrence. Click Here for full article

 

 

Some DB Plans Changing Accounting Measures PLANSPONSOR  | August 1, 2017

Most companies used a single weighted average discount rate to measure the interest cost and service cost components of benefit cost, but PwC found, beginning in 2015, many companies adopted a multiple discount rate approach.

 

For defined benefit (DB) plans included in a PwC study, the 2016 median discount rate decreased 20 basis points since 2015 (from 4.30% to 4.10%) and has decreased more than two full percentage points since 2007 (from 6.25%), reflecting the low interest rate environment of the past decade.

PwC’s Pension/OPEB 2017 Assumption and Disclosure Study, which represents an analysis of the 2016 year-end assumptions and disclosures of DB plans and analyzed data for 100 companies, comprising Fortune 100 and other large and established companies with a December 31 fiscal year-end, also found the 2016 median expected long-term rate of return on pension plan assets decreased 25 basis points since 2015 (from 7.25% to 7.00%) and 130 basis points since 2007 (from 8.30%), reflecting less optimistic capital markets outlooks of investment professionals.

The 2016 median salary scale assumption decreased 17 basis points since 2015 (from 3.97% to 3.80%) and has decreased 45 basis points since 2007 (from 4.25%).

Median plan funding levels remained unchanged from 2015, with pension plan assets equal to approximately 82% of the projected benefit obligation (PBO) in 2016 and 2015. In 2007, the median funded ratio was 100%. If interest rates were to return to 2007 levels, PwC estimates the median funded ratio would increase to roughly 110%.

Median deferred losses for pension plans in the study remained unchanged at 33% of the projected benefit obligation at the end of both 2015 and 2016. Of the 89 companies that defer recognition of gains/losses, 87 were in a loss position at 12/31/2016.

Median 2016 asset allocations for pension plans in the study were generally consistent with 2015 allocations at 40% equity, 39% debt/fixed income, and 16% other in 2016, compared to 39% equity, 40% debt/fixed income, and 15% other in 2015. In 2007, the median values were 64% equity, 29% debt/fixed income, and 5% other.

 Click Here to keep reading

 

Sanctions Bill Affects Retirement Plans By Rebecca Moore Editorsatplansponsor.com | August 09, 2017

Groom Law Group attorneys say they have seen an increase in the number of pension plans that have faced possible Office of Foreign Assets Control violations arising from distributions and investments. 

On August 2, President Donald Trump signed the Countering America’s Adversaries Through Sanctions Act.

“Many ERISA and governmental benefit plans may view trade sanctions as something that applies to banks but that doesn’t impact our retirement system. This view is wrong,” attorneys with Groom Law Group wrote in a Benefits Brief. 

Over the next few months, Groom says, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) will issue guidance implementing the changes set out in the sanctions bill. The attorneys say they have seen an increase in the number of pension plans that have faced possible OFAC violations arising from distributions and investments. 

According to the Benefits Brief, OFAC maintains a list of individuals and entities that are sanctioned on three lists, the Specially Designated Nationals List (SDN List), the Foreign Sanctions Evaders List (FSE List), and the Sectoral Sanctions List (SS List). To assist with compliance, OFAC offers an online search tool that allows users to compare names against the SDN and FSE Lists, found at https://sdnsearch(at)ofac.treas/gov.

Under OFAC guidance, both governmental and private employee benefit plans are required to comply with OFAC compliance programs. Groom warns that failure to comply can lead to reputational damage and/or civil and criminal penalties. An OFAC investigation generally ends with one of five concluding letters: No Action Letter; Cautionary Letter; Finding of Violation; Civil Penalty; or a Criminal Referral. Findings of Violation, Civil Penalties, and Criminal Referrals are generally issued publicly and can impact not just an organization’s reputation, but also its ability to obtain government contracts. 

In terms of civil penalties, as of July 27, OFAC has imposed nine civil penalties totaling almost $117 million. Criminal penalties, while less frequently imposed, are severe and can include fines of up to $20 million and/or imprisonment of up to 30 years.

Groom attorneys suggest Employee Retirement Income Security Act (ERISA) and governmental benefit plans develop a compliance program and enter into contracts with service providers to assist with compliance. Plans should examine (and continue to monitor) existing contracts and participant and beneficiary lists to ensure that the payments the plan is making (and investments and transactions the plan is making) are permitted. This involves:

·     Checking if plan assets and investments are connected with entities on the SDN, FSE, or SS lists;

·     Checking if participant or beneficiary payments are going to individuals on the SDN, FSE, or SS lists; and

·     Identifying payments to sanctioned countries such as Cuba, Iran, Sudan, and North Korea.

If this monitoring reveals that the plan is or would be engaged in a transaction with an OFAC-sanctioned entity, the plan should determine whether OFAC has granted a license to permit the transaction. If OFAC has not granted a license, the plan should take corrective action, including notifying OFAC, blocking the transaction, continuing to hold the blocked assets and potentially applying for an OFAC license. Click Here for full article

 

Pension Plan Sponsors Would Reap Savings on Longevity Table Delay Bloomberg BNA  

"For plan sponsors, a delay could mean lower required plan contributions, reduced variable rate premiums owed to the [PBGC], and an expanded opportunity to offer cheaper lump-sum payouts to employees.... It's uncertain whether the tables will in fact be delayed from their original Jan 1, 2018, effective date. However, the odds that they will have increased after the federal Office of Management and Budget recently designated the IRS rule as 'economically significant.' " Click Here for full article

 

CFOs Delighted with Pension Risk Transfers Prudential 

"Eighty-three percent of the survey respondents who've executed such a transaction said they are completely satisfied with all aspects of their group annuity purchase, and virtually the same number -- 81 percent -- agreed that plan beneficiaries affected by the transaction are content to receive their pension payments from an insurance company. Eighty-six percent said they believe the arrangement offers those participants greater retirement security in the long run."  Click Here for full article

 

Economic and Regulatory Environment may Spur Pension Risk Transfers  Prudential 

"Among DB plan sponsors who have not yet purchased an annuity, nearly half said they have discussed the strategy with an outside provider or advisor, and one in five said they expect to purchase a group annuity in the next two years.... Fifty-five percent of survey respondents said that if Washington enacts tax reforms that lower corporate tax rates, their companies will very likely use the tax savings to increase funding of their defined benefit pension plan, and execute either a full or partial liability transfer via a group annuity." Click Here for full article

 

 

 

 

 

 

 

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CONTENTS:

 

 

Cost Considerations When Freezing Your DB Plan

 

 

Some DB Plans Changing Accounting Measures

 

 

Sanctions Bill Affects Retirement Plans

 

 

Pension Plan Sponsors Would Reap Savings on Longevity Table Delay

 

 

CFOs Delighted with Pension Risk Transfers

 

 

Economic and Regulatory Environment may Spur Pension Risk Transfers

 

 

-

 

 

CONTACT US:

 

Austin Office

Patrick McLean, CPA

800-832-7742

pmclean@bcgpension.com

 

 

 

 Boston Corporate Office

Michael E. Devlin

(855) 432-7658  ext. 403

mdevlin@bcgpension.com

 

 

David Geloran, CEBS®, MBA

855-432-7658 ext. 401

dgeloran@bcgpension.com

 

 

 

Chicago Office

David Rumas, FCA, EA, MAAA

(855) 432-7658 ext. 406

drumas@bcgpension.com

 

Karen Ambrose

(855) 432-7658 ext. 410

kambrose@bcgpension.com

 

 

 

Cincinnati Office

Debbie M. Sharp, CEBS®

(855) 432-7658 ext. 405

dsharp@bcgpension.com

 

 

 

Boise/Los Angeles Offices

Sean O'Flaherty AIF®, CRPS®

(855) 432-7658 ext. 402

sean@bcgpension.com

 

ANNUITY RATES Standard Pension Closeout/Terminal Funding Case Rates:

(No lump sums, no disability or unusual provisions)

Retirees - 2.33%

Term Vesteds - 2.53%

Actives - 2.63%

 

 

BCG Pension Risk Consultants

We specialize in settling pension liabilities for terminating and ongoing pension plans.

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