From:                                         BCG Pension Risk Consultants <>

Sent:                                           Monday, August 27, 2018 2:17 PM

To:                                               Terry McCauley

Subject:                                     The Pension Insider January 2018


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.



January 2018- Volume 78, Edition 1



Provisions of Tax Reform Could Affect DB Plan Sponsor Strategies By Rebecca Moore January 8, 2018

DB plan sponsors may want to make a voluntary contribution to their plans in 2018 to claim a deduction at their former, higher tax rate, according to Michael A. Moran, with GSAM.

Since, under tax reform, the corporate tax rate will be lower in the future than what had previously been in effect, more voluntary defined benefit (DB) plan contribution activity is expected, according to Michael A. Moran, CFA, managing director and chief pension strategist with Goldman Sachs Asset Management (GSAM).

In a Q&A on GSAM’s website, Moran explains that contributions to corporate DB plans are generally tax deductible up to certain limits. For plan sponsors that were contemplating making a contribution in future years, some decided to accelerate that contribution into 2017 in order to reap the benefits of getting the tax deduction at a higher rate. GSAM observed that Kroger and Valvoline are two examples of companies that explicitly cited potential corporate tax reform as one of the reasons for making a voluntary contribution earlier in 2017.

According to Moran, since plan sponsors can under certain circumstances make a contribution up to eight and one-half months after the end of the year and still have it count as a deduction for the previous tax year, the firm expects voluntary contribution activity to continue into 2018 where sponsors claim a deduction at their former, higher tax rate.

In addition, changes to repatriation rules under tax reform may make foreign cash more accessible for U.S. multi-nationals, which may enable them to continue to make voluntary contributions in the future. Moran says estimates of overseas cash for U.S. companies have been in the range of $1 to $2.5 trillion.

He points out there have been several other factors which have also provided plan sponsors with an incentive to put more money into their plans sooner rather than later, including Pension Benefit Guaranty Corporation (PBGC) premiums.

Increased contribution activity leads to higher funded ratios which may be a catalyst for more de-risking activities, according to Moran. This may take the form of increased allocations to long duration fixed income, to better match plan liabilities, as well as more risk transfer activities since better funded plans make it easier for the plan sponsor to transfer liabilities to a third-party insurance company. Click Here to continue Reading



IRS Memo on RMDs Includes Standards for Searching for Missing Participants Seyfarth Shaw, LLP 11/02/2017 Attorneys: Jake R. DowningMichael WeissharRandell MontellaroFredric S. Singerman

Seyfarth Synopsis: The Internal Revenue Service released guidance detailing specific procedures qualified retirement plans may utilize to satisfy required minimum distribution standards for missing participants and beneficiaries.


Internal Revenue Code section 401(a)(9) establishes required minimum distribution (“RMD”) standards for qualified retirement plans. Generally, these standards require a participant’s benefit payments to begin no later than April 1 of the calendar year after the participant attains the age 70½ or retires. In the case of a deceased participant, RMD payments must generally be made to a non-spouse beneficiary within five calendar years after the year of the participant’s death. The Internal Revenue Service (“IRS”) has released administrative guidance regarding how qualified retirement plans may satisfy RMD standards when the participant or beneficiary to whom the payment is due cannot be located.


A qualified retirement plan that cannot locate a participant or beneficiary will be treated as satisfying RMD standards if the plan: (1) searches plan and publicly available records for the participant’s contact information; (2) uses a commercial locator service, credit reporting agency or proprietary internet search tool to locate the participant or beneficiary; and (3) attempts to contact the participant or beneficiary via United States Postal Service certified mail to the last known mailing address and any other appropriate means of contact, such as by email or telephone.


Implications for Employers 

Prior to this guidance, qualified retirement plans that did not make RMDs to missing participants or beneficiaries risked being considered in violation of the RMD requirements, and different IRS regions could apply different standards on audit. Now, qualified retirement plans that cannot locate a participant or beneficiary will be treated as not violating the RMD standards if in compliance with the procedures above.  


Although this new guidance is very helpful to plan sponsors, note that the Department of Labor (“DOL”) also audits retirement plans to assure that a plan maintains a prudent process for locating participants and paying benefits. The IRS’s guidance does not necessarily reflect what efforts the DOL may require a plan to make to locate lost participants. Click Here to read full article


DB Plan Sponsors Should Balance Four Levers to Improve Funding By Rebecca Moore

No lever alone is enough to close the pension funding gap, according to a report from Cambridge Associates.

Even amid a surging bull equity market, the average funded status of U.S. defined benefit (DB) plans has risen by only 2% in the last eight years, from 79% to 81%, according to global investment firm Cambridge Associates.

In a report, “A Balancing Act: Strategies for Financial Executives in Managing Pension Risk,” the firm said DB plan fiduciaries should coordinate across four “levers” that can help improve funded status and mitigate negative impacts of under-funding on corporate financials.

These levers are:

·     Asset Returns: Maximizing investment returns from growth assets, like public equities and alternative investments;

·     Liability Hedges: Optimizing investments in liability-hedging assets, such as bonds, to hedge key liability risks, including interest rate risk;

·     Contribution Policy: Having an established plan and set of guidelines around when and how to make incremental corporate contributions to the plan; and

·     Benefit Management: Altering future benefit structures, policies, or strategies.

No lever alone is enough to close the pension funding gap, according to the report. For example, consider a hypothetical defined benefit plan that is 80% funded ($1 billion liability; $800 million in assets). To reach 100% funded status in five years, relying only on growth asset investment returns would require an unrealistic 15.7% return in each of the five years. Similarly, it would take an unlikely 5.5% increase in interest rates over five years for the liability to shrink and close the funding gap. This hypothetical plan would need to contribute $67 million per year to close the gap with contributions alone.

Considerations for each lever

The report outlines considerations that CFOs and financial executives should keep in mind for each of the four levers. For one, creative use of illiquid and other strategies can help grow plan assets.

According to the report, returns from growth-oriented asset classes are the primary engine with which DB plans can grow assets relative to liabilities and close their funding gaps. But over the next 10 years, Cambridge Associates’ analysis projects low-single digit returns from traditional growth assets, such as global equities, which will not be enough for most plans to meet their spending requirements. Plan sponsors may benefit from looking to private equity and other illiquid asset classes, which have historically outpaced traditional assets’ returns and which are expected to outperform by even wider margins in the decade ahead.

Most corporate pensions in the U.S. can likely afford to invest more in illiquid investments than they think, the report says. And, by under-allocating to these investments they may be exposing their plans to unnecessary risk. Also, some growth portfolio assets can act as liability-hedging or “de-risking” assets; these investments allow plan sponsors to hedge against interest-rate risk without reducing allocation to growth, essentially “having one’s cake and eating it too.”

Secondly, mismanaging liability hedges can actually raise portfolio risk. According to the report, while liability-hedging assets, such as longer-duration bonds, can minimize the effect of interest-rate changes on the value of the plan’s liabilities (and therefore how it appears on the company balance sheet today), many DB plan sponsors may not be fully hedging their liabilities, betting too much on interest rate increases in the near future. If long maturity rates do not rise or rise very slowly, the value of liabilities may grow faster than plan assets, which could negatively impact balance sheets. Click Here to read full article






Austin Office

Patrick McLean, CPA





 Boston Corporate Office

Michael E. Devlin, Principal

(855) 432-7658  ext. 403



David Geloran, CEBS®, MBA

855-432-7658 ext. 401




Chicago Office

David Rumas, FCA, EA, MAAA

(855) 432-7658 ext. 406


Karen Ambrose

(855) 432-7658 ext. 410




Cincinnati Office

Debbie M. Sharp, CEBS®

(855) 432-7658 ext. 405




Boise/Los Angeles Offices

Sean O'Flaherty AIF®, CRPS®

(855) 432-7658 ext. 402



ANNUITY RATES Standard Pension Closeout/Terminal Funding Case Rates:

(No lump sums, no disability or unusual provisions)

Retirees - 2.78%

Term Vesteds - 2.83%

Actives - 2.93%

Annuity Purchase Rates as of January 22, 2018



BCG Pension Risk Consultants

We specialize in settling pension liabilities for terminating and ongoing pension plans.

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