From:                                         BCG Pension Risk Consultants <>

Sent:                                           Monday, August 27, 2018 2:18 PM

To:                                               Terry McCauley

Subject:                                     The Pension Insider May 2017



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.



May 2017- Volume 71, Edition 1



Mercer Anticipates Acceleration of Pension Activity By PLANADVISER Staff  | April 13, 2017

“We have seen many iterations of de‑risking actions over the past decade, and we see full plan terminations as the next wave, as many frozen plan sponsors convert from gradual steps to a Big Bang,” Mercer says.

While combined pre‑funding and risk transfer actions have typically been economically positive, primarily due to the substantial increase in Pension Benefit Guaranty Corporation (PBGC) premiums and other defined benefit (DB) maintenance costs, many plan sponsors have stayed on the sidelines or managed pension risk tentatively, Mercer notes in a report.

However, Mercer says, pension sponsors are growing tired of market and regulatory volatility and are contemplating bolder action. Potential tax changes that will drive accelerated pre‑funding make a tipping point imminent. “We have seen many iterations of de‑risking actions over the past decade, and we see full plan terminations as the next wave, as many frozen plan sponsors convert from gradual steps to a Big Bang,” Mercer concludes.

The private defined benefit (DB) pension market of approximately $3 trillion dwarfs the total bulk buyouts executed to date, Mercer notes.

“Over the next five to 10 years, we expect to see a shakeout of the corporate pension market with substantial outflows to insurance and household balance sheets in the form of annuities written by insurers and participants taking their DB benefit as a cash option,” the report says. The company also anticipates a number of factors will align in 2017 to accelerate pension changes and upend the relative inertia of recent years.  

“We see an imminent tipping point on pension pre‑funding that will, in turn, drive (or be driven by) pension risk transfer opportunities. While many will stick with their ‘hurry up and wait’ mentality in hopes of a more bullish market, we see an increasing number of plan sponsors jumping to the endgame. For frozen plans in particular, voluntary funding to terminate now, seen as a bold move in the past, may now be a very smart one,” Mercer says. Link to Article

Proposed Mortality Assumptions Will Increase DB Plan Costs  PLANSPONSOR | April 26, 2017

The Society of Actuaries estimates an increase in funding target liabilities, PBGC premiums and minimum required contributions.

The Society of Actuaries has analyzed the Internal Revenue Service’s proposed increases to the mortality tables that would apply to single employer pension plans in 2018, and has found that they will increase Pension Benefit Guaranteed Corporation (PBGC) premiums by 12%, from $8.6 billion to $9.6 billion.

They would also result in a 2.9% increase in the aggregate funding target liabilities, raising them by $65 billion, and decrease the aggregate funded status, from 97% to 96%. The aggregate funded percent would fall by a smaller percentage than the funding target would rise because many plans have enough surplus to cover the increase in their funding target, although their surplus would shrink. Plans that have a deficit on the current mortality basis would see an increased deficit, and it could be significant. And some plans with a small surplus would find themselves with a funding deficit. The authors estimate that the aggregate unfunded funding target (deficit) would increase 35%, from $63 billion to $85 billion, and the aggregate surplus would fall 14%, from $314 billion to $271 billion.

This study presents estimates of aggregate liabilities for minimum funding purposes (funding target) and funded status based on the following key assumptions:

  • Actual contributions continue to follow recent patterns relative to plan funding levels as determined for both funding regulations and PBGC premiums;
  • Treasury High Quality Market (HQM) corporate bond yield curve spot interest rates remain constant after 2016; and
  • Asset returns after 2016 equal 6% annually.

Based on analysis of solely traditional pension plans, one might expect a slightly higher increase of 3% to 5% of aggregate funding target liabilities, depending on the discount rate and age and gender mix of a plan population. However, the mortality change does not affect cash balance liabilities to the same extent as traditional pension plans.

While cash balance liabilities make up a meaningful portion of the aggregate funding target, the precise portion is difficult to determine. Form 5500 and its Schedules do not provide for reporting the portion of liabilities that stems from cash balance benefit designs. In addition, some plans have both traditional and cash balance or other hybrid designs. After analysis and consultation with actuaries working with large single employer pension plans, the authors estimate that roughly 10% of the aggregate funding target stems from cash balance designs. Link to Article

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