Foresee More Derisking DB Plans Using Alternative Investments
Rebecca Moore 6/3/19 PLANSPONSOR
Long-duration private debt can be
used for hedging liabilities, and other alternative investments
may be used for enhancing risk-adjusted returns, a report from
Cerulli Associates explains.
During the past decade, growth in the
outsourced chief investment officer (OCIO) space has been driven
by institutions’ lack of internal investment resources to cover
and manage all asset classes, and a lack of access to
higher-quality investment opportunities.
Recent research from Cerulli Associates, a global
research and consulting firm, indicates that these OCIO clients
are increasingly seeking alternative investments to diversify
their portfolios and to obtain higher returns than those
currently available from public investments.
According to “The Cerulli Edge - U.S. Asset and Wealth
Management Edition, June 2019 Issue,” corporate defined benefit
(DB) plans are generally not the largest holders of alternative
investments, and most professionals who work with DB plans report
that allocations tend to be found in plans that remain open.
Although there could be call for using alternatives to better
hedge liabilities, derisking corporate plans will likely see more
value in using alternatives in their risk-seeking investments.
OCIO providers indicate they expect allocations to alternative
asset classes to increase for nearly all institutional client
types while equity allocations are trimmed.
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Transactions Surged in First Quarter of 2019
Manganaro 5/22/19 PLANSPONSOR
Data from LIMRA Secure Retirement
Institute shows a 240% increase in pension risk transfer activity
in the first quarter of 2019 relative to the same period in 2018.
According to new data shared by the LIMRA Secure
Retirement Institute (LIMRA SRI), U.S. single premium pension
buyout product sales surpassed $4.7 billion in the first quarter
LIMRA SRI’s data suggests this is an increase of
240% compared with first quarter 2018 results, making for the
highest first-quarter pension risk transfer (PRT) sales total in
over 30 years. This data comes from LIMRA SRI’s U.S. Group
Annuity Risk Transfer Survey.
“Buyout products had a very strong start to the year
with $4.7 billion in sales,” says Mark Paracer, assistant
research director for LIMRA SRI. “Previous first quarter sales
had never exceeded $1.5 billion.”
Notably, LIMRA SRI finds the increase in sales was
not limited to just one or a few insurance companies. Rather,
two-thirds of companies engaging in PRT transactions reported
higher first quarter sales compared to the previous year.
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Know About Financial Audits Filed with Form 5500s
Barney 5/20/19 PLANSPONSOR
Plan sponsors required to file a
financial audit along with their Form 5500 should know how
regulators use the information and how to pick the best auditor.
Any retirement plan with 100 or more participants
must be independently audited by a certified public accountant
(CPA) firm and include those findings along with the annual Form
5500 it electronically files with the Department of Labor (DOL),
which in turn, shares it with the Internal Revenue Service (IRS).
It is imperative that plan sponsors work with
qualified CPA firms since the “2015 Assessing the Quality of
Employee Benefit Plan Audits” from the DOL found that 39% of
plans that were audited had either unacceptable or major
deficiencies, says Anne Morris, employee benefit plan practice
leader at Windham Brannon in Atlanta. And the auditor must use
Generally Accepted Accounting Principles (GAAP), says David
Guadagnoli, a partner at Sullivan & Worcester in Boston.
The Form 5500, which includes the audited financial
statements, is used by the DOL, IRS and, in the case of a defined
benefit plan, the Pension Benefit Guaranty Corporation (PBGC),
Guadagnoli adds. “The idea is that Congress felt that the plan
administrator, the government and participants needed financial
statements reviewed by an independent auditor to make sure
retirement plans are properly managed for participants,” he says.
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