DB Plans Far From Being Eliminated
By
Rebecca Moore | PLANSPONSOR | September, 2017
While headlines have stated the
disappearance of defined benefit (DB) retirement plans, a report
from Aon shows only 6% of U.S. corporate DB plan obligations have
actually been settled since 2012. However, Aon’s study, covering
100 U.S. plan sponsors totaling nearly four million participants
and $400 billion in assets, found the majority of plan sponsors
are continuing to look at settlement strategies to
opportunistically shrink the size of their pension plans. Click
Here for full article
Leaving Pension Management, and Pension Risk, Behind
By Chris
Schmidt | CFO Magazine| October, 03 2017
A shifting economic and regulatory environment is
driving increased pension risk transfer activity.
For several decades, corporate
America had been looking for ways to shed the increasing costs
and performance risk of sponsoring traditional, defined-benefit (DB) pension plans. Freezing
plans by halting the accrual of future benefits had become a
popular strategy. But plan sponsors that did that were still on
the hook for funding benefits that had accrued, as well as for
overseeing plans for decades to come as plan participants and
beneficiaries continued to draw benefits.
Five years ago, General Motors and
Verizon Communications surprised much of the pension community
when they undertook on a grand scale what until then had been a
relatively obscure strategy for shedding pension risk: purchasing
a group annuity to cover some of their DB plan’s pension
liabilities. Since those two starter megadeals, the strategy’s
popularity has surged.
In a typical transaction, the plan
sponsor transfers to the insurer securities and cash equal in
value to the benefit obligation the sponsor wishes to shed. The
transfer is usually a portion of the sponsor’s total obligation,
since shedding the entire obligation at one time could be
prohibitively expensive. Once executed, the transaction moves the
pension liability from the plan sponsor’s balance sheet to the
insurer’s balance sheet, and the insurer becomes responsible for
paying all future pension benefits to plan participants covered
by the agreement.
What’s prompting an increasing
number of DB plan sponsors to consider transferring some or all
of their pension benefit obligations to an insurance company? A
recent CFO Research survey, conducted in cooperation with
Prudential Financial, found that, of 80 senior finance executives
at U.S. companies that sponsor DB pension plans, more than 4 in
10 respondents (45%) said their firms had already completed a
pension risk transfer. Respondents who had completed a risk
transfer indicated that their decision to purchase a group
annuity had been driven by a broad list of factors, but a desire
to manage total pension costs including mitigating the impact of
increased premiums paid to the Pension Benefit Guaranty Corporation (PBGC) - was high on their
list. Click
Here for full article
PBGC Makes
Proposals About Plan Terminations
By Rebecca
Moore |
PLANSPONSOR | October 02, 2017
The agency is proposing that
termination forms may be filed electronically and that plan
sponsors be offered a pre-filing consultation.
The Pension Benefit Guaranty
Corporation (PBGC) intends to request that the Office of
Management and Budget (OMB) extend approval, under the Paperwork
Reduction Act of 1995, of a collection of information program
operating under its regulations on Termination of Single-Employer
Plans and Missing Participants.
The request also involves
implementation forms and instructions. The agency notes that
under section 4041 of the Employee Retirement Income Security Act
(ERISA), as amended, a single-employer pension plan may terminate
voluntarily only if it satisfies the requirements for either a
standard or a distress termination. Under the PBGC’s termination
regulation, a plan administrator wishing to terminate a plan is
required to submit specified information to the PBGC in support
of the proposed termination and to provide specified information
regarding the proposed termination to third parties
(participants, beneficiaries, alternate payees, and employee
organizations).
In the case of a plan with
participants or beneficiaries who cannot be located when their
benefits are to be distributed, the plan administrator is subject
to the requirements of ERISA section 4050 and the PBGC’s
regulation on missing participants.
The collection of information
under these regulations and the forms and instructions have been
approved by the OMB until November 30, 2017. The PBGC is
requesting that the OMB extend its approval for three years, with
modifications.
The agency is proposing to provide
that the plan administrator of a plan terminating in a standard
or distress termination that closes out in the private sector,
may submit termination forms electronically (scanned and emailed
or faxed), rather than by mail or personal delivery only.
In addition, the PBGC is proposing
to include an opportunity for plan sponsors to contact the agency
for a pre-filing consultation to discuss the filing process and
ensure the filing of a distress termination is appropriate given
the sponsor’s specific circumstances. The agency says this
consultation will assist it and the plan sponsor in exploring
whether a waiver of one or more filing obligations is
appropriate, identifying potential issues preventing a distress
termination of a particular plan, and may indicate that
commencement of an agency-initiated termination of the pension
plan is warranted. This consultation will be voluntary and will
result in little or no added burden on the plan sponsor. Click
Here for full article
