Martin clears way for others with rare buy-in
February 18, 2019 | Rob Kozlowski
John Mollard cited recent changes
in the tax laws as prompting Lockheed Martin to take action.
In completing a pension buy-in transaction, a rare
move for U.S. corporations, Lockheed Martin Corp. has opened the door for
others to follow as corporate pension fund executives look for
ways to reduce risk in their defined benefit plans, industry
The Bethesda, Md.-based defense and aerospace
company announced Jan. 29 it had completed two group annuity
purchases to reduce risk in its U.S. defined benefit plans, which
as of Sept. 30 had $35.2 billion in assets.
The first was a traditional buyout, transferring the
responsibility to pay benefits for about $1.6 billion in U.S.
pension plan liabilities to Prudential Insurance Co. of America.
Buyouts have been a relatively common transaction in the U.S.
since 2012 when General Motors Co., Detroit, transferred $29 billion
The second was a buy-in transaction. Lockheed Martin
purchased an $810 million group annuity contract from Athene
Annuity and Life Co., which will reimburse Lockheed Martin for
benefit payments the plan will make to its retirees and
beneficiaries. Both transactions took place in December.
John Mollard, vice president and treasurer at
Lockheed Martin, said in a telephone interview that the process
began with the company's $5 billion in contributions to its
pension plans in 2018.
Motivated by the passage of the Tax Reform and Jobs
Act, which dropped the corporate tax rate to 21% from 35%, Mr.
Mollard said the company decided to accelerate its contributions
to take advantage of the higher tax deduction that was set to
expire Sept. 15, 2018. Click here to read full article
in Pension Risk Transfer Expected to Increase in 2019
Planadviser | January 25, 2019 | Lee Barney
The majority of DB plan sponsors
plan to completely divest all of their company’s liabilities in
the near future.
While 2018 was another robust year for pension risk
transfer (PRT), plan sponsors plan to increase their PRT efforts
in 2019, a new poll of defined benefit (DB) plan sponsors by
According to the 2019 Pension Risk Transfer Poll,
among DB plan sponsors with de-risking goals, 76% intend to
completely divest all of their company’s liabilities at some
point in the future.
“The poll findings indicate a trend in increased
risk transfer activity as we anticipate plan sponsors will want
to proactively deal with the cost and volatility of their plans,”
says Wayne Daniel, senior vice president and head of U.S.
pensions at MetLife. “As a result, many will begin to look more
closely at the $3 trillion of DB plan liabilities that have not
yet been de-risked and begin to evaluate how they can address
Among the 67% of DB sponsors considering a risk
transfer in the next two years, 77% have evaluated the financial
impact of such a transfer, 74% have held discussions with key
stakeholders, 65% reviewed and cleaned up their data, 59% have
explored the solutions in the marketplace and/or quantified the
cost of a pension risk transfer.
The majority, 79%, say they are more likely to
consider an annuity buyout now that they have witnessed several
large corporations taking this action. Sixty-seven percent say
they will conduct an annuity buyout to de-risk, up from 57% in
2017 and 46% since 2015.
Fifty-four percent intend to tranche transactions by
participant population. Retirees are identified as the most
common population for which sponsors are considering purchasing
annuities (54%), followed by terminated-vested participants
(43%). Only one in three (30%) say they would secure a buyout for
all participants. For full article: Click Here
Strategic Insight, parent company of PLANADVISER,
conducted the survey for MetLife along with MMR Research
Associates, in August and September.
To download full results Click Here
Pilot Mediation Program Permanent, Adds Fiduciary Disputes
PlanSponsor | January 28, 2019 |
The Pension Benefit Guaranty
Corporation has added fiduciary breach cases to the categories of
disputes covered by the mediation program.
The Pension Benefit Guaranty Corporation (PBGC) has
announced its decision to make its Pilot Mediation Program a
permanent project, given its early success in helping to resolve
pension termination liability collection and Early Warning Program cases.
In addition to making the mediation program
permanent, PBGC has added fiduciary breach cases to the
categories of disputes covered. According to PBGC officials, this
gives pension plan administrators the opportunity to resolve
these cases with “a neutral, professional, independent mediator
in a timely and cost-effective manner.”
The mediation program initially launched in October 2017 and was meant
to help opposing parties resolve cases with the assistance of a
skilled, neutral and independent dispute resolution professional.
The mediation project was described as part of the agency’s
ongoing efforts to make it easier for sponsors to maintain their
PBGC initially chose termination liability
collections cases and Early Warning Program matters for the pilot
project as potentially reaping the greatest benefit from
mediation. Since the launch of the program, PBGC officials have
observed additional opportunities for effective mediation of
fiduciary breach matters.
Other recent changes at the PBGC are recounted on
the organizations website. Among these changes, PBGC recently adjusted its
maximum penalty amounts for failures to provided required information and notices. PBGC is required to adjust these amounts to
account for inflation and other factors, but the agency says its
goal is to encourage compliance, not to penalize plans that
inadvertently forget to file information. Click Here for link to article
Balance Plans Need Different Administration Systems Than
Traditional DB Plans
PlanSponsor | December 24, 2018 |
The characteristics of cash
balance plans that are similar to defined contribution plans
create a need for different technology than traditional defined
Cash balance plans are defined benefit (DB) plans,
but are different than traditional DB plans in that they have
characteristics of defined contribution (DC) plans.
For this reason, using traditional DB plan
administration systems for cash balance plans can be complex and
Kravitz President Dan Kravitz, based in Los Angeles,
says since 1984 when Bank of America implemented its cash balance
plan, DB administration providers would take some programming
from DC plans and overlay that with the DB plan system. Some plan
sponsors developed their own systems. In addition, actuaries
would do manual work in an Excel spreadsheet and input that into
traditional DB plan systems.
“DB plan administration providers would do
workarounds - we did for years - but that is not efficient,”
Monica Gallagher, partner at October Three, who
leads its defined benefit administration services practice and is
based in Jacksonville, Florida, explains, “Pension administration
systems built to handle traditional pension plans naturally
focused on complex calculations. These pension benefit
calculations generally involved looking back at years of data
(e.g., 5 to 10 years of pay, complete service history from date of
hire including any breaks in service etc.). Some complex formulas
also involved items such as Social Security benefit offsets or
coordination with Social Security Covered Compensation. As a
result, many existing pension administration tools were built using
robust mainframe systems. These traditional pension benefits were
generally payable as an annuity at a future early or normal
retirement date and the focus was on individual accrued benefits
generally calculated once a year.”
Kevin Palm, retirement plan sales consultant with
Kravitz and an enrolled actuary, based in Los Angeles, points out
that this differs from cash balance plans. With traditional DB
plans, the focus is on an annuity benefit and all other optional
forms of distributions, including lump sums, come second; whereas
with cash balance plans, the lump sum is presented first. “Cash
balance plan software has to calculate a participant’s benefit
similar to a DC plan style - opening balance, interest crediting
rate, ending balance. An actuary calculates the distribution in
the form of an annuity and joint and survivor benefit,” he says. Click Here for full article