What DB
Plans Can Learn From Insurance Companies
By Rebecca Moore | PLANSPONSOR |November 20, 2019
Insurance companies take on pension risk, so why
wouldn’t DB plan sponsors take lessons from insurer’s investment
strategies?
John Simone, managing director and head of Voya’s
Insurance Investment Solutions business in Chicago, says old
ideas for insurance companies are new ideas for defined benefit
(DB) plans.
Just as DB plans are challenged by low interest
rates and the late credit cycle, so are insurance companies; they
have to meet long-term obligations too. And, as Brett Cornwell,
fixed income client portfolio manager at Voya Investment
Management in Atlanta, Georgia, points out, it is insurance
companies that DB plan sponsors turn to when transferring the
risk of their plans.
According to Cornwell, DB plans, in the last 10 or
15 years, have been adding more fixed income instruments that
match the duration of their liabilities, such as long-duration
bonds. They have also been moving out of growth-seeking assets.
“DB plans are discounted with the AA corporate bond yield, so
intuitively, plan sponsors are using more long-duration bonds to
match the discount rate,” he says.
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DB Plan
Cash Flow Needs Are Greater Than Ever
By Rebecca Moore | PLANSPONSOR |November 26, 2019
In these days of low interest rates, and following
money market reform, investing strategies are needed to meet
cash-flow needs from retiring baby Boomers and pension risk
transfer actions.
WITH BABY BOOMERS RETIRING every
day, defined benefit (DB) plan sponsors have more cash needs now.
Jeff Whitehead, head of client investment solutions
at Aegon, based in Cedar Rapids, Iowa, believes if a DB plan
isn’t already experiencing negative cash flow, it’s headed that
way.
Peter Yi, director of short-duration fixed income
and head of credit research at Northern Trust Asset Management
(NTAM) in Chicago, says his firm is having conversations with DB
plan sponsors about how they can be more thoughtful on optimizing
cash holdings. “We are challenging our client to rethink cash and
more effectively and efficiently use it. For the time being, DB
plans are holding more liquidity and less risk assets,” he says.
Money market funds were at one time an effective
cash preservation vehicle. NTAM believes the Securities and
Exchange Commission (SEC) money
market fund reforms requiring higher cash (or
similarly liquid vehicle) ratios at daily and weekly intervals
redefined “illiquid” securities, restricted lower quality
securities in fund makeup and stricter maturity limits on fund
components, resulting in their income levels becoming extremely
modest.
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DB Funded
Status Held Up Fairly Well, Considering...
By Rebecca
Moore|
PLANSPONSOR |December 10, 2019
Though down for the year, DB plan sponsors have seen
upticks in funded status for three straight months, and sources
make suggestions for continuing to hold on.
River and Mercantile notes that long-term corporate
bond yields stayed relatively flat in November and U.S. stock
prices moved higher. “With liability discount rates remaining
level and an increase in U.S. equity markets, most [pension]
plans should have seen a slight increase in funded status for the
second month in a row,” the firm says in its Monthly
Retirement Update for December.
It’s true that firms that track defined benefit (DB)
plan funded status recorded a slight increase of about 1%. The
aggregate funded ratio for U.S. corporate pension plans increased
by one percentage point to end the month of November at 86.8%,
according to Wilshire Consulting. Likewise, Mercer estimated the
aggregate funding level of pension plans sponsored by S&P
1500 companies increased by one percentage point in November to
86%.
Mercer says this is the result of an increase in
equity markets and a slight increase in discount rates. Ned
McGuire, managing director and a member of the Investment
Management & Research Group of Wilshire Consulting, notes,
“November’s one percentage point increase in funded ratio is the
third consecutive and seventh monthly increase this year.”
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Officials
Issue New Items for DB Plan Sponsors
COMPLIANCE |
PLANSPONSOR|December 10, 2019
The PBGC has issued a final rule regarding pension
plans undergoing distress or involuntary termination, and the
OSFI has released a form for contribution schedule reporting.
The Pension Benefit Guaranty Corporation (PBGC) has
published a final
rule amending its regulation on Allocation of
Assets in Single-Employer Plans by substituting a new table for
determining expected retirement ages for participants in pension
plans undergoing distress or involuntary termination with
valuation dates falling in 2020.
The table is needed to compute the value of early
retirement benefits and, thus, the total value of benefits under
a plan. The rule is effective January 1, 2020.
The Office of the Superintendent of Financial
Institutions (OSFI) issued a Schedule of
Expected Pension Contributions Form. Section
9.1 of the Pension Benefits Standards Act, 1985(PBSA) requires a
pension plan administrator and the fund trustee or custodian to
notify the OSFI when expected contributions to a pension plan are
not remitted on time. To enable fund trustees or custodians to
fulfill their obligation to report late remittances, the PBSA
requires a plan administrator to notify them of the amount and
expected remittance date of future contributions. For this, the
Schedule of Expected Pension Contributions Form may be used.
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