November 2013 Archive

Market-based cash balance plans: myths and reality

November 25, 2013

As required by the Pension Protection Act, in 2010 IRS issued regulations that allow a cash balance (CB) plan to base interest credits on ‘market rates of return.’ This new plan design allows the employer to transfer investment risk, and reward, in a cash balance plan to the participant – just like a defined contribution plan. Some actuarial firms are uncomfortable with this new design. Here’s what some firms are saying, and here's our response. Read More

Preliminary IRS guidance on same-sex marriage

November 19, 2013

This summer, IRS released Revenue Ruling 2013-17, providing guidance on the treatment of same-sex marriages under the Tax Code after the Supreme Court's decision in United States v. Windsor. In this article we begin with a brief discussion of the significance of marital status in retirement plans and then review and analyze IRS's guidance. Read More

Retirement income: payout options from the sponsor's perspective

November 14, 2013

In this article we address the issue of payout options in a defined contribution plan, from the sponsor's point of view. We are going, generally, to limit this article to the question: should a sponsor include one or more annuity options in its DC/401(k) plan? We will begin, however, with a brief discussion of why annuity options are important for participants and the financial advantage inside-the-plan annuities provides them. Read More

Retirement income: Participant payout options

November 13, 2013

In this article we consider the issue of how a 401(k) balance can or should be paid out at retirement, from the participant's point of view. What sorts of payment options are available and what are their pros and cons? For purposes of this article we'll consider all the options a participant could be offered in a plan -- that is, we're not going to limit the discussion only to those that are typically offered. Read More

The retirement income challenge

November 11, 2013

We begin a series on the key retirement income question of the day: how does an account-based retirement plan provide adequate income in retirement? In this introductory article we survey the issues. Read More

Possible extension of MAP-21 interest rate stabilization

November 08, 2013

Lawmakers in Washington have a budget problem, and a small part of the solution being considered is, as we understand it, an extension of interest rate stabilization relief under 2012's "Moving Ahead for Progress in the 21st Century Act" (MAP-21). The proposal is to extend the MAP-21 25-year average floor at the 90% level through 2016. We thought it would be useful, in this context, to review where we are with MAP-21. Read More

MAP-21 and DB plan finance – Looking ahead to 2014

November 07, 2013

We have been posting articles regularly on the effect of the "Moving Ahead for Progress in the 21st Century Act" (MAP-21) interest rate floor on defined benefit plan funding. IRS recently published MAP-21 rates for 2014. This article briefly reviews the new rates and their implications for plan funding. Read More

ReDB – a better solution for nondiscrimination problems

November 06, 2013

In September, we published an article on the nondiscrimination problem presented by some frozen plans. Generally, the problem arises because, as part of a plan freeze or similar transaction, employers create a ‘closed group’ of ‘old’ employees who get a different, ‘better’ benefit than the benefit provided to new employees. As we discuss in our article, a closed group like this may create a problem under the Tax Code nondiscrimination rule. In this article we want to focus on a particular, fairly common, closed group ‘fact situation,’ where a DB plan is closed to new entrants. Read More

October 2013 Pension Finance Update

November 01, 2013

Financial markets shook off the government debt imbroglio last month, building on an already outstanding year for pension sponsors. The two ‘model’ plans we track each saw improvements, with traditional ‘Plan A’ and the more conservative ‘Plan B’ both gaining 1% during October. For the year, Plan A has enjoyed an eye-popping 20% improvement in funded status while Plan B is up about 6%. Download

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