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Subject:                                     The Pension Insider June 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.



June 2017- Volume 72, Edition 1



Proposed Mortality Assumptions Will Increase DB Plan Costs By PLANSPONSOR Staff | 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.  Click Here for full article


How to Repair Common Plan Errors Rebecca Moore  EDITORS(at) | June 09, 2017

What programs are available to help when a plan error gets committed?

No one is perfect, not even plan sponsors. Mistakes will be made.

Speaking at the 2017 PLANSPONSOR National Conference, in Washington, D.C., Tami Guimelli, assistant vice president, Employee Retirement Income Security Act (ERISA) attorney, benefits consulting group at John Hancock Retirement Plan Services, discussed common plan mistakes and how to navigate the regulators’ various correction programs.

Guimelli explained that the self-correction program (SCP) is part of the Internal Revenue Service (IRS)’ Employee Plans Compliance Resolution System (EPCRS) and allows plan sponsors to correct operational plan failures. The voluntary correction program (VCP) covers operational failures, but also demographic failures and plan document failures.

There is a fee involved with the VCP. Plan sponsors file a formal submission process and pay a per-participant fee. Guimelli said the IRS will review the plan sponsor’s proposed correction and, hopefully, approve it and send the sponsor a compliance letter. The sponsor will have 150 days to fix the error.

The closing agreement program (CAP) is the most expensive IRS correction program, but sometimes the fee can be negotiated down. An error that would require the CAP could be one the IRS finds during an examination of the plan; it would disqualify the plan and make it and participant contributions subject to taxation.

Guimelli noted it is easier to fix a problem before the IRS finds it.  Click Here to continue reading


SCOTUS Endorses Broader Understanding of ‘Church Plans’ Rebecca Moore  EDITORS(at) | June 05, 2017

The Supreme Court has ruled plans maintained by principal-purpose religious organizations are eligible for the church-plan exemption, whatever their origins.

Following oral arguments in March in the cases of Advocate Health Care Network v. StapletonSt. Peter’s Healthcare System v. Kaplan, and Dignity Health v. Rollins, the U.S. Supreme Court found plans maintained by principal-purpose organizations qualified as “church plans."  However, the court did not rule that the health care systems in these cases qualified as principal-purpose organizations.

Of the many cases challenging whether an entity’s pension plan is a “church plan” under the Employee Retirement Security Act (ERISA), federal appellate courts ruled that the plans in these cases did not fit ERISA’s definition of “church plan.”

In its slip opinion, the Supreme Court focuses on the definition of church plan under ERISA, noting that from the beginning, ERISA has defined a “church plan” as “a plan established and maintained ... for its employees ... by a church.” Congress then amended the statute to expand that definition, adding the provision that: “A plan established and maintained for its employees ... by a church ... includes a plan maintained by an organization ... the principal purpose ... of which is the administration or funding of [such] plan ... for the employees of a church ..., if such organization is controlled by or associated with a church.” 

The Supreme Court concluded that a plan maintained by a principal-purpose organization qualifies as a “church plan,” regardless of who established it. It noted that the amendment provides that the original definitional phrase will now “include” another—“a plan maintained by [a principal-purpose] organization.”

“That use of the word ‘include’ is not literal, but tells readers that a different type of plan should receive the same treatment (i.e., an exemption from ERISA) as the type described in the old definition," the justices said.  Click Here to continue reading


Fixed Income Strategies in a High Interest Environment Javier Simon  EDITORS(at) | May 22, 2017

In light of market rate hikes, PIMCO offers investing insight to prepare.

In light of looming interest rate hikes, PIMCO suggests the current environment could make active fixed income strategies more lucrative.

Even though several plan sponsors are moving away from active management to avoid high fees particularly with stocks, the firm notes that bonds are different. PIMCO points to research by Morningstar indicating 84% of active managers in three of the most common DC bond categories beat their median passive peers over the last five years, whereas only 41% of active equity managers outperformed their median passive peers.

But in light of market volatility, PIMCO also advises investors to rethink how they invest in bonds. The firm suggests employing diversified bond allocations “representative of the broadest global bond opportunity set.” It also directs sponsors to “increase tactical duration flexibility to mitigate downside risk,” and “allocating dynamically across credit markets to capture a premium above government bonds.” 

PIMCO notes this can be achieved by turning a focus on multi-sector bonds, and consolidating bond options into a single, multi-sector solution pre-packaged or in white label form. Click Here to continue reading


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ANNUITY RATES Standard Pension Closeout/Terminal Funding Case Rates:

(No lump sums, no disability or unusual provisions)

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Term Vesteds - 2.58%

Actives - 2.68%



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