Subject:                                     BCG Pension Insider October 2018



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.



October 2018 - Volume 84, Edition 1



In the News: BCG Pension Risk Consultants' Michael Devlin on

Pension Risk Transfers and De-Risking Strategies*



Managing Growing PBGC Premiums*

PlanSponsor | October 02, 2018


How do plan sponsors do that, and have they already taken steps to do so? 


When the Bipartisan Budget Act of 2015 was signed into law in November 2015, it extended pensions stabilization rules for three years, making it easier for defined benefit (DB) plan sponsors to get approval to use mortality tables other than that prescribed by the U.S. Treasury, but it also increased, once again, the Pension Benefit Guaranty Corporation (PBGC) fixed and variable-rate premiums.


The flat-rate premium for PBGC insurance coverage of a pension funding shortfall increased by another 25% over the following three years, while the variable rate will rise closer to 35%. This means annual fixed-rates by 2019 will rise to $80 per participant, while the variable rate will rise to 4.1% on unfunded vested benefits.


For example, take a plan with 2,000 retirees with 500 of those retirees receiving a pension from this plan of less than $2,000 per year. The expenses alone to keep them in the plan, including PBGC premiums, are approximately $300 per year.


The rising pension funds are definitely scaring plan sponsors, says Robin Solomon, partner, Ivins, Phillips & Barker in Washington, D.C. “Plan sponsors are trying to reduce head count in order to lower PBGC obligations,” she says. “This year, in particular, we’ve seen record stock market returns. Most categories of equities have had positive returns so far this year and plan funding has benefited as a result.”


But there is another side of this equation, Solomon says, namely “interest rates, which are used to calculate pension liabilities. Even though the stock market has gone up, pension funding has not improved that much because interest rates have remained unusually low for a long period of time.”


David Hinderstein, president of Strategic Retirement Group, Inc. in White Plains, New York, says, “PBGC premiums are still front and center for each plan sponsors overall expenses on the DB plan along with taxation and funded status and finding ways to de-risk their DB liabilities.


“The more aggressive steps you can you can take to eliminate expenses on a traditional DB plan the go directly to the improved funding status,” he says. “But in addition, small balance cash outs, lump sum offerings and aggressive pension risk transfer (PRT) to insurance companies have also increased as plan sponsors have a greater understanding of their liabilities.”


Pension Risk Transfers


The reason there are more PRT lump sums or buyouts is not only about the PBGC rate increases, according to Michael E. Devlin, Principal, BCG Pension Risk Consultants, in Boston. “Funding levels are the best they’ve been pre-2008 due to the rise in the stock market,” he says.


In addition, “There is the combination of interest rates increasing and the implementation of the new Internal Revenue Service (IRS) mortality tables, which reflect a longevity measurement more in sync with insurance carrier assumptions. Tie this in with increased PBGC fees, and you see why plan sponsors are actively exploring and implementing these de-risking strategies.”

When plan sponsors de-risk, Devlin explains, they no longer have to pay for several expenses such as: the custodian on the account, the issuing of the 1099, the PBGC fees, plus the plan has eliminated the stock market risk, longevity risk, and interest rate risk.


Devlin says that companies like BCG Pension Risk Consultants, Mercer and Willis Towers Watson had been annuitizing DB funds on a plan termination basis, and now we’re seeing a tremendous amount of plan sponsors doing it on a non-termination basis. Click Here for full article



A Note From Alexandra Hyten -

Prudential Perspectives in Pension De-Risking

Alexandra Hyten Vice President, U.S. Pension Risk Transfer


The dog days of summer may be behind us, but the pension risk transfer pipeline is still hot! Many plan sponsors increased pension contributions by September 15, and we’ve also seen the highest sales total on record for the past 15 years in the second quarter.


In fact, over $10 billion of pension liabilities have been settled so far in 2018. With demand for risk transfer solutions on the rise, and pension buy-outs top of mind, it’s important for plan sponsors and advisers to take the appropriate steps to begin preparing now. Equally important is selecting an experienced team of professionals who can help execute a seamless transaction and ensure pension promises are kept to employees and retirees.


Under New Tax Law, Finance Leaders Show Appetite for Pension De-Risking

CFO Research, in collaboration with Prudential, surveyed senior finance executives and discovered how the Tax Cuts and Jobs Act of 2017 is driving senior finance executives to reduce the liability risks associated with their corporate defined benefit (DB) pension plans. Click Here to read more


Preparing for Pension Risk Transfer

Whether or not a buy-out is imminent, there are preparations a plan sponsor can take to make a future transaction easier and to shorten the timeline for execution. Click Here to read more


Data Spotlight: CFO Research Survey Results

A new study of 127 senior finance executives revealed that many are using the Tax Cuts and Jobs Act to ramp up their funding contributions. The study also found that:

·     74% were very likely to make a substantial DB plan contribution

·     by September 15

·     24% plan to use repatriated capital to bolster their DB funding levels

·     29% expect to use excess income to minimize liability risk, through such efforts as boosting retiree healthcare funding

·     62% agree, once their DB pension plan becomes well-funded, they’re very likely to execute a full or partial pension risk transfer

Click Here to read full results


Working With a Pension Leader

Whether you’re a plan sponsor, adviser or consultant, working with the right partner through a pension risk transfer is critical to transaction success. What is unique to working with Prudential is the quality of our people. Click Here to read more



DOL Pressure on Missing Participants Propels New Solution Plan Sponsor | John Manganaro


“As a plan sponsor, if you have an opportunity to deal with lost participants and do something with un-cashed checks, why wouldn’t you do that?” asks Mark Koeppen at FPS Trust.


According to Mark Koeppen, senior vice president in charge of strategic rollovers for FPS Trust, disproportionate cost-shifting to accounts with higher balances and increased liability are just some of the issues fiduciaries face when employees move on to other opportunities and leave their qualified retirement plan balances behind.


“It is a big challenge for the plan sponsor community, deciding how to deal with growing plan fees from employees who go off to other jobs, leaving the employer to deal with the cost and paperwork of the retirement account they leave behind,” Koeppen says.


Sensing an opportunity to better serve plan sponsors facing this challenge, FPS Trust has designed a fully automated rollover program that will establish individual retirement accounts (IRAs) for former, non-responsive employees with qualifying balances below $5,000. The solution is also tailored for terminating plans with non-responsive participants.


“We have been focusing a lot on the auto-IRA rollover market in recent years, given how much of a challenge it is for the industry,” Koeppen tells PLANSPONSOR. “We have been working with plan sponsors, consultants and advisers to try to find solutions to retirement plan leakage. We have learned there are some key points where these stakeholders can come together and create powerful solutions to help protect the assets of retirement plans and participants.” Click Here for full article.







Austin Office

Patrick McLean


(800) 832-7742



 Boston Corporate Office

Michael E. Devlin, Principal

(855) 432-7658  ext. 403


Steve Keating

(203) 955-1566


David Geloran


(855) 432-7658 ext. 401



Chicago Office

David Rumas


(855) 432-7658 ext. 406


Karen Ambrose

(855) 432-7658 ext. 410


Karl K. Oman


(855) 432-7658 ext. 408



Cincinnati Office

Debbie M. Sharp


(855) 432-7658 ext. 405



Boise/Los Angeles Offices

Sean O'Flaherty


(855) 432-7658 ext. 402



ANNUITY RATES Standard Pension Closeout/Terminal Funding Case Rates:

(No lump sums, no disability or unusual provisions)

Retirees - 3.23%

Term Vesteds - 3.28%

Actives - 3.40%

Annuity Purchase Rates as of October 15, 2018



BCG Pension Risk Consultants

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

Today’s Solutions for Tomorrow’s Needs. 




BCG Pension Risk Consultants | 100 Grandview Road, Suite 303, Braintree, MA 02184

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