Subject:                                     BCG Pension Insider February 2019



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.



February 2019 - Volume 88, Edition 1



Lockheed Martin clears way for others with rare buy-in

Pensions&Investments | 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 observers said.


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 to Prudential.


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




Interest 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 MetLife found.


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 this.”


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



PBGC Makes Pilot Mediation Program Permanent, Adds Fiduciary Disputes

PlanSponsor | January 28, 2019 | John Manganaro


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 pension plans.


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


Cash Balance Plans Need Different Administration Systems Than Traditional DB Plans

PlanSponsor | December 24, 2018 | Rebecca Moore

The characteristics of cash balance plans that are similar to defined contribution plans create a need for different technology than traditional defined benefit plans.


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 costly.


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,” Kravitz says.


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






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ANNUITY RATES Standard Pension Closeout/Terminal Funding Case Rates:

(No lump sums, no disability or unusual provisions)

Retirees - 3.18%

Term Vesteds - 3.23%

Actives - 3.30%

Annuity Purchase Rates as of February 18, 2019



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