In this article we present some “lessons learned,” thus far, with regard to 2020 annuity settlements – transferring DB liabilities with respect to one or more participants to an annuity carrier. We say “thus far” because it is still practical for some sponsors to transfer DB liabilities to a carrier this year.
Pension plan funded statuses have generally declined in 2020 and PBGC premiums will increase in 2021. Now may be the perfect time for your plan to reduce premiums by reducing headcounts.
Defined benefit plan valuation interest rates have declined nearly 200 basis points since late 2018. Interest rate stabilization has significantly mitigated the effect of this decline on plan funding. GAAP accounting (e.g., balance sheet disclosure) is, however, indexed to current rates, and the steep declines in interest rates have presented a number of challenges and opportunities for defined benefit plan sponsors.
The Social Security Administration just announced benefit increases effective in 2021. Current retirees will receive a cost-of-living increase, beginning in January 2021, of 1.3%, reflecting the increase in CPI-W between the 3rd quarter of 2019 and the 3rd quarter of 2020.
This election generally must be made (for a calendar plan) by October 15, 2020.
Vice President Biden’s suggestions on tax policy changes address corporate and personal tax rates. But these changes will potentially impact corporate pension plans, too.
With a presidential election coming up next month, tax policy will be one of the issues on the table. And, while it seems reasonable to assume that if President Trump were to be re-elected his tax policy would not change, we also know that if former Vice President Joe Biden gets elected, there will be changes.
Lower stock prices hit pensions during September. Both model plans we track lost ground last month, with Plan A dropping 2% and Plan B slipping 1% during the month. For the year, Plan A is now down 5% and Plan B is down more than 1% through the first three quarters of 2020.
On August 11, 2020, the United States Court of Appeals for the Fourth Circuit handed down its decision in Stegemann v. Gannett, ruling (in a 2-1 holding) that plaintiffs could proceed with their claim that a legacy stock fund in the Gannett 401(k) plan violated ERISA’s fiduciary prudence and diversification requirements.
Defined benefit plan sponsors that (1) currently using the standard (spot-rate) method to determine unfunded vested benefits (UVBs) for purposes of calculating Pension Benefit Guaranty Corporation variable-rate premiums, and who (2) have the ability to elect to switch to the alternative (24-month average) method, may have an opportunity to reduce (in some cases significantly) 2020 variable-rate premiums by doing so.