DOL to Increase DB Audits
By Nick
Otto | Employee Benefit News | September 28 2017, 10:12pm EDT
While all eyes have been on the
Senate in its push to repeal and replace the Affordable Care Act,
the regulatory benefit landscape still has some changes on the
horizon.
A hot topic coming out of the
Department of Labor is the agency’s plan to audit DB pension
plans to ensure plan sponsors are getting benefits paid out to
terminated vested participants, says Norma Sharara, a principal
in Mercer’s employment practices risk management group.
It’s something “completely new”
that started as a pilot program out of the Philadelphia DOL
office, Sharara noted Thursday on Mercer’s Washington Outlook
webcast.
While it sounds beneficial to
many, “the bad news is that plan sponsors aren’t happy because
the DOL views not contacting people entitled to benefits as being
a plan sponsor breach of fiduciary duty,” she warned.
In the DOL’s view, not contacting
totally vested participants early and periodically to inform them
they are not entitled to benefits is a breach of the plan
sponsors duty to provide benefits, Sharara said.
For a scope on the initiatives
effect, the Philadelphia office alone between October 2016 and
August 2017 found $165 million in benefits that were paid out to
eligible participants.
The agency announced at a recent
ERISA Advisory Council meeting it would be releasing guidance at
some point. In the meantime, Sharara suggested following some
best practices EBSA acting director, Tim Hauser, mentioned at the
meeting.
· Send participants a certified
letter using their last known address - “certified” being the key
word, Sharara added.
· Keep good records on how to
reach plan participants and pass those records onto successors
during a M&A.
· Contact coworkers and ask if they
know how to get in touch with plan participants.
· Try using phone numbers and not
just addresses, as people tend to keep their cell phone numbers
even when they move, Sharara added. Click
Here for full article
PBGC Proposes Changes to Form 5500 Reporting by DB
Plans
By Rebecca
Moore | PLANSPONSOR | September, 2017
The agency is proposing two modifications for
multiemployer plans and one modification for single-employer
plans.
The Pension Benefit Guaranty
Corporation (PBGC) intends to request that the Office of
Management and Budget (OMB) extend for three years its approval
of information collection on the annual Form 5500 filing required
by defined benefit (DB) plan sponsors.
The collection of information has
been approved by the OMB through August 31, 2020.
In its Notice of Intent, the PBGC
is proposing two modifications to the 2017 Form 5500 Schedule MB
(Multiemployer Defined Benefit Plan Actuarial Information)
instructions and one modification to the schedule SB (Single
Employer Defined Benefit Plan Actuarial Information)
instructions.
With regard to the Schedule MB
instructions, the agency is proposing to change the instructions
to require new attachments in two situations:
· If any of the contributions
reported in Line 3 (Contributions Made to Plan) include amounts
owed for withdrawal liability, PBGC is proposing to require plan
administrators to report for each reported contribution (on an
attachment to Line 3), the aggregate amount of withdrawal
liability payments included in such contribution. The agency says
separating withdrawal payments from contributions will assist in
projections of future ongoing contributions and also will provide
information regarding withdrawing employers.
· For multiemployer plans for which
Code C (Critical Status) or Code D (Critical and Declining
Status) is entered on Line 4b), the current Schedule MB
instructions require that plans report the year a troubled
multiemployer plan is projected to become insolvent or emerge
from troubled status on Line 4f. The PBGC is proposing that basic
supporting documentation be included as an attachment to Line 4f.
Such plans would be required to report in the attachment
year-by-year cash flow projections for the period ending with
whichever is applicable, the year the plan is projected to emerge
from Critical or Critical and Declining Status or the year the
plan is projected to become insolvent; and a summary of the
assumptions underlying these projections. The agency says it is
proposing the addition of this information to enable it to better
project the impact on participants and PBGC’s insurance system.
With regard to the Schedule SB
instructions, PBGC is proposing to change the instructions
related to an attachment that is currently required of plans for
which the Internal Revenue Service (IRS) has granted permission
to use a substitute mortality table. The current instructions for
Schedule SB, item 23, describe the information that is to be
included in the attachment. Those instructions reflect the
current IRS regulation on the use of substitute mortality tables,
but the PBGC’s proposed changes to the Schedule SB are based on
amendments to the IRS mortality table regulations that are
proposed to become effective 1/1/2018. If the regulations
are not effective on 1/1/2018, then the proposed changes to the
Schedule SB will be deleted from the final Form 5500
instructions. The agency says the addition of information will
allow it to reconstruct the substitute table for which the plan
has sought IRS approval, which will enable it to better predict
future funding requirements and the impact on participants and the
insurance system. Click
Here for full article
PBGC Premiums Driving DB Plan Sponsors to Fund,
De-Risk By
Rebecca Moore | PLANSPONSOR | September, 2017
“Companies feel that the time is right to reduce or
eliminate their pension funding shortfalls.” says Matt McDaniel,
partner, Mercer.
Eighty percent of defined benefit
(DB) plan sponsors have accelerated funding, largely due to
increasing Pension Benefit Guarantee Corporation (PBGC) fees and
the prospect of lower corporate taxes, according to results of
the Mercer/ CFO Research 2017 Risk Survey, “Adventures in Pension
Risk Management.”
“Two years ago, mortality
assumptions dominated as the main influencing factor. Today,
PBGC premiums and market conditions have emerged as most cited
reasons. Companies feel that the time is right to reduce or
eliminate their pension funding shortfalls.” says Matt McDaniel,
partner, Mercer. “Continuing the trend we found in our 2015
survey, the migration toward pension risk transfer and de-risking
carries on at an accelerated pace.”
Specifically, respondents say they
are now contributing more than the minimum level of funding to
their DB plans either because they want to reach specific
thresholds or because they aim to fully fund the plan over a
shorter period of time than regulations require. PBGC premiums tripled
between 2011 and 2016 and are expected to quadruple by 2019 -
which has had a notable effect on plan sponsors.
When asked about reasons why they
either have increased funding or would consider doing so, 40% of
respondents decided to increase funding to reduce the cost of
future PBGC premiums, and nearly 33% are also considering funding
for that same reason. According to Mercer, that combined total of
nearly 73% is a notable increase from the 2015 survey results,
which found only about 60% citing PBGC premiums as a deciding
factor to fund above requirement.
Nearly 60% of survey respondents
intend to terminate their plans within the next ten years. Most
have a funding deficit they must overcome first. “Sponsors who
want to develop a successful pension exit strategy have to make
sure they create a process that evaluates and changes the asset
allocation, lowering pension risk as frozen plans move closer to
termination.” says McDaniel. “DB plan sponsors should weigh
considerations such as the plan’s objective, their time horizon,
the magnitude of their obligations and the state of the economy.”
De-Risking Accelerates
More than eight in ten respondents
say they either have a “dynamic de-risking strategy in place”
(42%) or “are currently considering one” (40%), citing a desire
to avoid volatility in their financial statements as a main
reason. More than half of respondents (55%), however, say they
struggle with finding enough internal resources to manage their
pension plan. As such, 52% of those surveyed delegate some or all
investment execution to a third party through an outsourced chief
investment officer (OCIO) model.
Nearly 75% of Mercer’s survey
respondents say they have already offered lump-sum payments to
certain participants since 2012 - up from 59% from the 2015
Mercer CFO survey findings. About 50% of all respondents consider
it likely that their companies will take some form of lump-sum,
risk-transfer action in the next couple of years - for many of
these sponsors, this will be a second or third lump-sum offer.
A significant number of sponsors
have implemented an annuity buyout for some pension participants,
where an insurer assumes responsibility for the sponsor’s
retirement liabilities. Among survey respondents, more than half
(55%) have either completed such an annuity buyout or are
considering it.
Many companies are held back by
the misconception that such annuities are either “expensive”
(37%) or “very expensive” (25%). Specifically, these respondents
estimate that the cost of an annuity would require their pensions
to post a projected benefit obligation (PBO) of more than 110%.
However, Mercer’s experience shows the majority of transactions
occur between 100% and 110% of PBO. Click
Here for full article