LIMRA Finds Growing Interest in PRTs and MEPs
By Amanda Umpierrez | PLANSPONSOR
Even though pension risk transfer is better
understood by plan sponsors, LIMRA hopes pending legislation that
would open multiple employer plans to more employers will create
an opportunity for greater plan access.
Emerging data from a new LIMRA report studies
awareness and interest in Pension Risk Transfer (PRT)
transactions and multiple employer plans (MEPs), given the
growing challenge among plan sponsors in funding retirement
plans.
The LIMRA Secure Retirement Institute (SRI) study
reports eight in 10 private-sector defined benefit (DB) plan
sponsors—that are also offering a defined contribution (DC)
plan—have at least minimal interest in PRT. Four in 10, however,
are saying they have a high interest in the feature. This
attention towards PRT has gone up considerably since 2014, from
32% of employers reporting an interest up to 44% in 2019.
According to the study, half of all employers with frozen DB
plans would like to offer PRT products, while 39% of those with
active DB plans are curious about them.
While PRT transactions continue to gain momentum,
MEPs are just growing traction in the plan sponsor community,
largely due to the recent attention towards the Setting Up Every
Community for Retirement Enhancement (SECURE) Act of 2019. Just
36% of all employers are somewhat or very familiar about MEPs,
and only 29% of small employers with fewer than 50 workers
understand the term, according to Dave Levenson, president and
CEO of LIMRA. However, given recent participant reaction towards
MEPs and new legislation from the SECURE Act, Levenson is hopeful
employer awareness will swing upwards.
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DB Plan Funding Takes a Hit From Record-Setting
Low Interest Rates in August
By Rebecca Moore | 9/9/19 | PLANSPONSOR
Pension plans that have invested in long bonds would
have benefited, according to Northern Trust Asset Management, and
Legal and General Investment Management America suggests market
volatility can be risk-managed and controlled to a specific
target with the use of an overlay.
The estimated aggregate funding level of defined
benefit (DB) pension plans sponsored by S&P 1500 companies
decreased by 4% in August 2019 to 82%, as a result of a decrease
in discount rates and equity markets, according to Mercer.
As of August 31, the estimated aggregate deficit of
$451 billion increased by $129 billion as compared to $322
billion measured at the end of July.
The S&P 500 index decreased 1.81% and the MSCI
EAFE index decreased 2.88% in August. Typical discount rates for
pension plans as measured by the Mercer Yield Curve decreased
from 3.38% to 2.95%.
“Funded status dropped sharply in August with interest
rates now at their lowest point in modern history,” says Matt
McDaniel, a partner in Mercer’s Wealth business. “Interest rates
decreased dramatically during August with the 30-Year Treasury
falling to an all-time low at under 2%. The yield curve inverted,
which has historically signaled an impending recession, and
equity returns for August were negative as well.”
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Greater Longevity Will Require Plan Design Changes
By Amanda Umpierrez | PLANSPONSOR
As developed countries around the world, including
the U.S., see the average age of their population increase,
employers must prepare for an imbalanced workforce.
A 2018 Natixis report on the aging global workforce
points to Japan as a bellwether for what other developed
economies can expect. In that country, 27% of people are
currently over the age of 65, and, by 2050, there will be 70
retirees for every 100 workers.
Ed Farrington, head of retirement at Natixis, says
the world should celebrate medical advances and broad-based
lifestyle changes allowing more people to reach older ages and
remain healthy. But, he says, when it comes to the topic of
retirement planning in an aging world, greater longevity is a
serious issue to confront.
“We’re talking about retirement systems that were
built on the expectation of having somewhere between 15 and 20
people living in retirement for every 100 workers. Seventy
retirees per 100 workers simply becomes unsustainable.”
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