November 2015 Archive

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

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

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

De-risking activity: Impact of interest rate and mortality assumption changes

November 04, 2015

In this article we are going to briefly discuss the effect of changes in mortality and interest rate assumptions on de-risking transactions. While de-risking covers a lot of things, we are only going to focus on its effect on de-risking transactions that involve paying out lump sums to terminated vested participants. Read More

Pension plan termination strategy – part 1

November 04, 2015

While interest rates remain near historic lows and, thus, measured pension liabilities remain high, some plan sponsors, particularly sponsors of frozen plans, have decided on (or are considering) plan termination. In this article we discuss the financial factors affecting a decision to terminate or not terminate a frozen plan, comparing the cost of buying annuities with the ‘book value’ of the plan plus ongoing overhead costs. Read More

Benefit provisions of proposed debt ceiling bill

November 03, 2015

On October 30 the Senate followed the House and approved a debt ceiling fix that includes increases in Pension Benefit Guaranty Corporation premiums, a modification of Tax Code rules for when plan-specific mortality assumptions may be used, and an extension of Highway and Transportation Funding Act of 2014 (HATFA) interest rate stabilization relief. In this article we discuss this changes. Read More

October 2015 Pension Finance Update

November 03, 2015

Pension sponsors saw an improvement in funded status during October, as both stocks and interest rates moved higher. Both model pension plans we track gained ground last month: Plan A picked up almost 5% during October and is now ahead 3% for the year, while Plan B improved close to 2% last month and is now up almost 2% on the year through October. Read More

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