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Browsing Defined Benefit

2020 lessons learned – lump sum de-risking in the context of steeply declining interest rates

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.

2021 Increases for Retirement Plans, Social Security

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.

September 2020 Pension Finance Update

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.

Measuring UVBs for variable-rate premiums – the alternative vs. standard method election

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.

Annuity Purchase Update: September 2020 Interest Rates

Pensions enjoyed their best month of the year in August, driven by higher stock prices and higher interest rates. The average duration 7 annuity purchase interest rates increased 16 basis points and average duration 15 rates increased 27 basis points since last month as seen in the below graph titled Annuity Purchase Interest Rates.

DOL proposes new rules on proxy voting

On August 31, 2020, the Department of Labor released a proposed regulation revising DOL’s rules for the voting (or not voting) of proxies by ERISA plan fiduciaries. The new rule requires that fiduciaries apply an economic cost-benefit analysis to decisions about whether or how to vote proxies and/or engage in shareholder activism that is explicitly stricter than current rules.