Concerns over pension de-risking

This summer the ERISA Advisory Council (EAC) held hearings on “Private Sector Pension De-Risking and Participant Protections,” and on November 5, 2013 the EAC issued summary findings and recommendations. At the hearings a number of participant advocacy groups raised issues with aspects of current defined benefit plan de-risking practice. In this article, we begin with… Read More

2014 pension de-risking: deferred vested liability

In this article we discuss how increases in interest rates and increases in the Pension Benefit Guaranty Corporation’s (PBGC) flat-rate premium have made ‘de-risking’ more attractive in 2014. For purposes of this article, by de-risking we mean paying out a participant’s benefit as a lump sum and thereby eliminating the related liability, and our focus… Read More

IRS provides temporary relief for ‘closed plan’ nondiscrimination issue

In September we posted an article on the treatment of frozen plans under Tax Code nondiscrimination rules (Treasury/IRS highlight ‘closed plan’ DB issues in Priority Guidance Plan). In December 2013 IRS released Notice 2014-5, providing temporary relief from the ‘frozen plan problem’ for 2014 and 2015 for plans that meet certain conditions. In this article… Read More

PBGC variable premium vs. borrow-and-fund: impact of higher premiums

Given the significant increase in variable-rate premiums included in the Ryan-Murray bi-partisan budget deal (the Bipartisan Budget Act of 2013 (BBA 2013)), we thought it would be useful to re-visit our article on variable premiums vs. borrow-and-fund. The gist of the prior article was that Pension Benefit Guaranty Corporation (PBGC) variable premiums create an incentive… Read More

Increased PBGC premiums in budget deal

On December 10, 2013 Congressman Ryan (R-WI) and Senator Murray (D-WA) announced a bi-partisan budget deal, the Bipartisan Budget Act of 2013 (BBA 2013). The proposal includes increases in PBGC premiums for single-employer plans, as follows: Increase in the flat-rate premium. The current PBGC flat-rate premium is $42 per participant; it is scheduled to increase… Read More

PBGC premium increases and the FY2013 annual report

On December 10th, Congressional budget negotiators agreed on a short-term deal intended to forestall federal budget crises for the coming year. As part of the deal, PBGC premiums will increase substantially compared to current law beginning in 2015. A summary of the provisions of the agreement can be found here. Recently, the PBGC released its… Read More

Variable annuity designs: promise and pitfalls

While corporate America continues to move away from defined benefit (DB) plans, these designs have enjoyed a sharp uptick in popularity in some market segments in recent years. The trend is due in part to enabling legislation (the Pension Protection Act (PPA), enacted in 2006), which has sparked a wave of innovative plan design solutions…. Read More

Retirement income: the value of deferring Social Security

In this article we are going to focus on one specific issue under current Social Security rules: the relative utility of deferring the commencement of a participant’s Social Security benefit to age 70. (To be clear: we are talking about the deferral of the commencement of Social Security, not the deferral of retirement.) We discuss… Read More

Is age 70 the ‘new normal’ for retirement?

If you think about a retirement benefit as an in-kind benefit – e.g., every employee needs enough money to replace 70-80% of her preretirement income – then the cost of providing that benefit has doubled in the last 13 years. Why? Because interest rates have declined by more than 400 basis points since 2000. The… Read More

Market-based cash balance plans:myths and reality

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… Read More

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