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.

 

November 2019 - Volume 97, Edition 1

 

 

Breaking Free From Interest Rate Bind on DB Funding

By Lee Barney | PLANSPONSOR |October 17, 2019

 

The long-running low interest rate environment has created DB plan funding challenges, but plan sponsors can take steps to mitigate them.

 

Defined benefit (DB) plans are facing funding challenges, but there are actions that they can take to mitigate them.



The main problem is that the equity markets have been volatile and interest rates declined sharply in the late summer, says Gordon Young, senior director, retirement, at Willis Towers Watson in Milwaukee. Through the end of July, interest rates for both Treasury and high-quality corporate bond yields decreased to their lowest levels since the global financial crisis of 2008, Young notes. Then, in August, the 30-year Treasury yield dropped below 2% and the Merrill Lynch AA-AAA 10+ index dropped below 3% - both historically low levels.

Click Here for full article

 

Increase in Interest Rates Gives DB Plans a Boost in September

By Rebecca Moore| PLANSPONSOR |October 9, 2019

 

Jessica Hart, with Northern Trust Asset Management, notes, “Even though the Fed cut rates by 25 bps, the average liability discount rate climbed by 13 bps. This highlights the reality that for pension plans, movement at the long end of the yield curve is more impactful than the headline Fed rate.”

 

The average funded ratio of corporate defined benefit (DB) plans improved in September from 82.5% to 84%, according to Northern Trust Asset Management (NTAM). Both positive returns in the equity market along with lower liabilities led to higher funded ratio.

 

NTAM says global equity market returns were up approximately 2.1% during the month. The average discount rate increased from 2.56% to 2.69% during the month.

 

Jessica Hart, head of OCIO Retirement Practice, notes, “Even though the Fed cut rates by 25 bps, the average liability discount rate climbed by 13 bps. This highlights the reality that for pension plans, movement at the long end of the yield curve is more impactful than the headline Fed rate.”

According to River and Mercantile’s monthly Retirement Update, long term interest rates saw some of the steepest rises in recent memory in early September, with the 10 year U.S. Treasury yield rising approximately 30 bps in a few days. This increase was not fully sustained for the rest of the month but discount rates did remain higher compared to their multi-year lows achieved in August.

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DB Plan Sponsors Focused on Cost and Funded Status Concerns

By Rebecca Moore| PLANSPONSOR |November 13, 2019

 

They are lengthening bond durations and increasing liability-hedging fixed income allocations, a Vanguard survey found.

 

Since 2010, the S&P 500 increased by over 200% but barely kept pace with defined benefit (DB) plan liability growth due to discount rates falling more than 250 basis points and longer life spans as reflected in a new mortality table, Vanguard notes in a report about its 2019 survey of pension sponsors.

 

It points out that pension plan sponsors also faced three revisions to the funding regulations introduced by the Pension Protection Act of 2006 (PPA), a quadrupling of Pension Benefit Guaranty Corporation (PBGC) premiums, and the growth of the pension risk-transfer business from approximately $1 billion per year to $25 billion per year. “These changes have caused plan sponsors to rethink the way they operate their pension plans, especially in the areas of plan design, asset allocation, investment policy, risk management and fiduciary partnerships, Vanguard says.

 

About one-third of plans are open and active (33%), frozen with no future benefit accruals (34%) and closed to new entrants (32%). Compared with 2010, significantly more pension plans are closed to new entrants and frozen to future benefit accruals in 2019, Vanguard found. However, the percentage of closed and frozen plans in 2019 is similar to that of 2015. The firm says this leveling off of the closing and freezing of pension plans shows that those plans that remained open and active following the global financial crisis, through the introduction of the more stringent funding and marked-to-market reporting requirements, and despite the increases in PBGC premiums are more likely to be dedicated to keeping that plan open in the future.

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Number of Plans Passing Off Liabilities Expected to Rise

By Rob Kozlowski | Pensions&Investments |October 27, 2019

 

U.S. corporate pension plans are showing an increasing interest in plan terminations as the pension risk transfer market remains steady.

 

The number of pension risk transfer deals, including those involving full plan terminations, is expected to rise this year, sources said.

 

Even so, U.S. corporate pension plans are expected to transfer a total of about $25 billion in liabilities to insurance companies in 2019, consistent with last year.

 

The total for 2018 was about $27 billion, according to the annual LIMRA Secure Retirement Institute survey. Despite the similar dollar amounts, the number of deals will likely increase significantly, said Matt McDaniel, Philadelphia-based U.S. leader of Mercer LLC's financial strategy group, in a telephone interview.

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CONTACT US:

 

Austin Office

Patrick McLean

CPA

(512) 480-8309

pmclean@bcgpension.com

 

 

 

 Boston Corporate Office

Michael E. Devlin,

Principal

(855) 432-7658  ext. 403

mdevlin@bcgpension.com

 

Steve Keating

(203) 955-1566

skeating@bcgpension.com

 

David Geloran

CEBS®

(855) 432-7658 ext. 401

dgeloran@bcgpension.com

 

 

 

Chicago Office

David Rumas

FCA, EA, MAAA

(219) 381-9545 drumas@bcgpension.com

 

Karen Ambrose

(855) 432-7658 ext. 410

kambrose@bcgpension.com

 

Karl K. Oman

ASA, EA, MAAA

(312) 550-3844

koman@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, disability or unusual provisions)

Retirees - 2.38%

Term Vesteds - 2.43%

Actives - 2.55%

Annuity Purchase Rates as of November 11, 2019

 

 

 

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

Bridging the Pension Gap

 

 

 

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