DB Funded
Status Improved in June, but Down for Q2
By Rebecca
Moore 7/9/19 PLANSPONSOR
While
asset returns gave defined benefit (DB) plan sponsors a funded
status bump in June, lower interest rates led to an overall
decline for the second quarter of 2019.
The
aggregate funded ratio for U.S. corporate pension plans increased
by 0.8 percentage points to end the month of June at 86.4%,
according to Wilshire Consulting.
The
monthly change in funding resulted from a 3.8% increase in asset
values more than offsetting the 2.8% increase in liability
values. “June’s increase in funded ratio was driven by the
best performance for June in Wilshire 5000 history,” stated Ned
McGuire, Managing Director and a member of the Investment
Management & Research Group of Wilshire
Consulting. “June’s 0.8 percentage point increase in funded
ratio is the fourth monthly increase this year.”
The
estimated aggregate funding level of pension plans sponsored by
S&P 1500 companies increased by 2% in June to 87%, as a
result of an increase in equity markets which offset a decrease
in discount rates, according to Mercer. As of June 30, the
estimated aggregate deficit of $308 billion decreased by $31
billion as compared to $339 billion measured at the end of
May.
The
S&P 500 index increased 7.05% and the MSCI EAFE index
increased 5.97% in June. Typical discount rates for pension plans
as measured by the Mercer Yield Curve decreased from 3.63% to
3.44%.
According
to Northern Trust Asset Management (NTAM), corporate defined
benefit (DB) plans’ funded ratio improved from 86% to 87% in
June. Global equity market returns were up approximately 6.55%
during the month. The average discount rate decreased from 3.27%
to 3.06% during the month. This led to higher liabilities, though
again these were more than offset by the favorable returns in the
equity markets.
While an
improvement came during the last month, the drop in discount
rates has kept funded status from recovering to the 2019 highs of
just below 90%, NTAM notes. Click
Here for full
article.
Supreme
Court Asked If Well-Funded Pensions Can Harm Participants
By John
Manganaro 6/19/19 PLANSPONSOR
ERISA
allows plan participants to sue to remedy demonstrable harms they
have suffered as a result of fiduciary breaches. Less clear is
how to apply ERISA’s remedies when a breach is alleged to have
occurred within a well-funded pension plan.
In a newly
published analysis, a trio of attorneys with Bressler, Amery
& Ross consider the case of Thole v. U.S. Bank, which has
been appealed to the Supreme Court in the hope of testing the
question of whether well-funded pensions can be sued for
“harming” retirees.
The
authors are Thomas Roberts, a principal in the firm’s securities
practice; Donald Winningham III, counsel; and Kathryn Rockwood,
an associate in the firm’s securities practice. According to the
trio, the case of James J. Thole et al. v. U.S. Bank NA et al.
asks the question whether participants in U.S. Bank’s pension
plan can sue their employer for alleged Employee Retirement
Income Security Act (ERISA) fiduciary breaches even though their
pension plan is not facing funding issues—implying that
individual retirees cannot establish that they have suffered an
actionable harm.
Specifically,
the Supreme Court has been asked to weigh the following questions:
“(1) Whether an ERISA plan participant or beneficiary may seek
injunctive relief against fiduciary misconduct under 29 U.S.C. §
1132(a)(3) without demonstrating individual financial loss or the
imminent risk thereof; and (2) whether an ERISA plan participant
or beneficiary may seek restoration of plan losses caused by
fiduciary breach under 29 U.S.C. § 1132(a)(2) without
demonstrating individual financial loss or the imminent risk
thereof.”
As the
attorneys point out, back in October 2018, the Supreme Court
requested the United States Solicitor General to “opine whether
the court should grant cert to the matter filed by retirees.” As
detailed in a lengthy brief, the Solicitor General responded in
the affirmative. The next step in the case is a conference of the
Supreme Court justices on this matter, set for June 20. Click
Here for full
article.