Current Events

How will the Fed interest rate increase affect pension plans?

December 22, 2015

On Wednesday, December 16, 2015, the Federal Reserve Federal Open Market Committee announced that it had “decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent.” This represents, roughly, a 25 basis point increase in short term rates. For most defined benefit plans, interest rates are the most significant variable in plan valuations. In this article we review how the Fed’s action may affect DB plan sponsors’ (1) financial statements, (2) funding and (3) de-risking decisions. Read More

Legal and Regulatory Update – December 2015

December 10, 2015

In this article, we discuss: the final IRS rules for hybrid plans not in compliance with the market rate of return standard – those rules also postpone the effective date of 2014 hybrid rules to 2017; the recent decision in Pfeil v. State Street, a stock drop case; ERISA Advisory Council recommendations with respect to pension risk transfers; and the possible inclusion in omnibus spending legislation of a provision de-funding the Department of Labor’s fiduciary proposal. Read More

Pension plan termination strategy – part 2

November 13, 2015

In our prior article, we discussed the basic factors in a standard plan termination analysis: taking as a baseline the plan’s PBO, we considered the key variables of the present value of future administrative costs (including PBGC premiums) and the annuity purchase premium. In this article we will consider a factor that is left out of that analysis – the equity risk premium. Read More

Update on State Plans

November 12, 2015

The Government Accountability Office has released a report – "Retirement Security – Federal Action Could Help State Efforts to Expand Private Sector Coverage." The report reviews (1) estimates of workplace retirement savings program coverage, (2) strategies being pursued by some states to expand coverage and (3) possible legal obstacles under federal law (primarily ERISA) to these state efforts. In this article we review the report and a couple of other recent state plan developments Read More

PBGC premium increases: significance for funding, de-risking & plan termination

November 11, 2015

We have previously posted articles on strategies for borrowing-and-funding and reducing headcount to reduce Pension Benefit Guaranty Corporation premiums. The increases in PBGC premiums in the Bipartisan Budget Act of 2015 (BBA2015) have made this strategy even more compelling. In this article we review the cost of borrowing-and-funding vs. continuing to pay the PBGC variable-rate premium in light of those premium increases. Read More

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