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PBGC variable-rate premium vs. borrow-and-fund

For defined benefit plans that (1) are underfunded (using market interest rates and asset values) and (2) are not at the Pension Benefit Guaranty Corporation variable-rate premium (VRP) headcount cap, the “go to” strategy for reducing VRPs is to make current contributions to increase the plan’s funded status.
After the passage of SECURE 2.0, which froze the VRP rate at 5.2% of unfunded vested benefits (UVBs), determining when it is economically more efficient to borrow-and-fund vs. funding the plan over time (at ERISA minimums) and paying the 5.2% VRP “tax” is, in some respects, relatively straightforward. In this article, we review this calculation. We conclude with some observations about future interest rate risk and how it might affect borrow-and-fund decision-making.

Themes in 401(k) prudence litigation: standing and “meaningful benchmarks for comparison”

Two recent decisions – in Singh v. Deloitte and Locasio v. Fluor Corporation – granting defendants’ motions to dismiss in ERISA prudence litigation illustrate emerging themes in these cases: challenges to the standing of plaintiffs who have not actually invested in the funds (or in one case, were not participants in the plan) being targeted; and challenges to the adequacy of the comparators whose allegedly superior performance (or lower cost) is used to “infer” imprudence. In this article we briefly review these cases.

January 2023 Annuity Purchase Update

2022 was another record year for PRT. We have already seen a great deal of spill-over in 2023. Hang on. The first half of 2023 should be another record.

Reasons for sponsors to consider settling liabilities in 2023

Increases in interest rates, the increasing cost of PBGC premiums, and the idiosyncrasies of IRS minimum funding/benefit restriction rules may, for many sponsors, make 2023 a good year for defined benefit plan liability settlement – through the payment of lump sums or the purchase of annuities (AKA pension risk transfer). In this article, we briefly review the issues with respect to 2023 settlements sponsors will want to consider.

IRS proposes regulation making electronic spousal consent rules permanent

On December 30, 2022, IRS published a proposed amendment to current spousal consent regulations that would make that temporary remote/electronic spousal consent relief (with certain modifications) permanent. Sponsors/plan administrators may rely on the proposed rules until final regulations are effective. In this article we review the proposal.

December 2022 Pension Finance Update

 2022 was a rough year for stock markets – the S&P 500 lost more than 18%, the index’s worst showing in 14 years and the fourth worst year since 1950 – and yet, pension finances held up pretty well, buoyed by the largest increase in interest rate seen since at least 1980. The two model…Read More

2022 Retirement Policy – Year in Review

In this review of retirement policy developments in 2022, we discuss major retirement-related legislative and regulatory initiatives and significant developments in retirement plan litigation.

SECURE 2.0 included in omnibus budget legislation

On December 20, 2022, a coalition of Democrats and Republicans in Congress released an omnibus spending bill that included a “Division T SECURE 2.0 Act of 2022,” incorporating bipartisan retirement policy legislation combining proposals included in the House of Representatives’ Securing a Strong Retirement Act of 2022, the Senate Health, Education, Labor, and Pensions (HELP) Committee’s Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (the RISE & SHINE Act), and the Senate Finance Committee’s Enhancing American Retirement Now (EARN) Act. The spending bill is expected to pass before the end of this week.
In this article we review key elements of the new proposal.

Congress Opens the Door for the Retirement Program of the Future

As happens late every year, Congress has passed a spending bill, this time called the Consolidated Appropriations Act, 2023 (CAA 2023). As anticipated, the bill includes a wealth of retirement provisions often referred to as SECURE 2.0. Most of the provisions in SECURE 2.0 are 401(k)- or 403(b)-related, as expected.