Buck Consultants Analyzes PBGC Guidance on DC Rollovers

In “PBGC Finalizes Additional Guarantee for DC Rollovers”, Buck Consultants, a Xerox company explains that:

“PBGC has finalized regulations that increase individual participant maximum benefit guarantees when covered defined benefit plans accept rollovers from defined contribution plans in exchange for lifetime income benefits and are subsequently terminated. PBGC anticipates increased use of rollovers and aims to promote retirement security for those benefits.”

To read more, click here.
ERIC members and trial members can read more on this issue here.

Towers Watson Finds that Defined Benefit Plan Risk Declined for Large Companies in 2014

In “Pension Risk Declines for Fortune 1000 Plan Sponsors in 2014”, Towers Watson reports that:

“Among companies in the 2013 and 2014 Fortune 1000, the median Pension Risk Index score fell from 1.8% to 1.2% over the last year. Over 2013, a strong stock market increased market capitalization and higher interest rates reduced liabilities. Companies whose pensions pose significant risks might want to consider de-risking their plans by shifting from equity to debt.”

To read more, click here.

Milliman Analyzes Hybrid Plan Guidance

In “IRS Issues Final and Proposed Rules for Hybrid Pension Plans”, Milliman indicates that:

“The IRS has published a final rule covering tax-qualified cash balance (hybrid) pension plans, providing guidance on the key issue of “market rate of return.” Sponsors of hybrid plans have waited for four years for this guidance since the agency delayed the effective date of an October 2010 final rule following practitioners’ concerns that the IRS had incorrectly interpreted the statutory definition. In general, the final rule applies to plan years that begin on or after Jan. 1, 2016. The IRS also published a companion proposed rule to facilitate the transition for plan sponsors to adopt requirements, allowing for an election to apply the proposed rule to amendments adopted earlier than Jan. 1, 2016. The IRS seeks comments on the proposal by Dec. 18, 2014.”

To read more, click here.

ERIC Offers Recommendations on PBGC Information Collection Request on De-Risking Activities

The ERISA Industry Committee (ERIC), the Washington, D.C.-based trade association representing America’s major employers, today in a letter to the Pension Benefit Guaranty Corporation (PBGC) urged the agency to support plan sponsors’ efforts to maintain their defined benefit pension plans, including methods used by companies which enable them to continue to sponsor these plans.

ERIC offers recommendations that seek to ensure that the PBGC collects information that represents data related to the transactions subject to the Information Collection Request (and does not inadvertently over or under-report relevant data). In addition, ERIC also provides background information regarding de-risking transactions that it believes the PBGC will find helpful as the agency begins to collect data related to these activities.

To read more, click here.

IRS Updates 2015 Retirement Plan Limits

The Internal Revenue Service (IRS) has announced the cost‑of‑living adjustments for retirement plans for 2015. The IRS explains that “Many of the pension plan limitations will change for 2015 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged because the increase in the index did not meet the statutory thresholds that trigger their adjustment.” The announcement indicated that the limit for elective deferrals for 401(k) plans increased from $17,500 to $18,000 and the limit for catch-up contributions for employees aged 50 increased from $5,500 to $6,000.

To read more, click here.

New Analysis of Hybrid Plan Regulations

Richard Shea and Robert Newman Covington & Burling LLP highlight the key provisions of the new hybrid plan regulations in “Hybrid Plan Regulations Could Reinvigorate the Defined Benefit Plan System”. In the article, they indicate that:

“Treasury and the IRS recently issued long-awaited regulations governing cash balance and other hybrid pension plans. Final regulations implement the intent of Congress in the Pension Protection Act of 2006 (the “PPA”) to eliminate the so-called “whipsaw calculation” and permit more generous rates of return for employees and retirees. Proposed regulations issued at the same time set forth a path for non-compliant plans to become compliant. Private sector plans must adopt these changes before the first day of first plan year beginning in 2016. Most significantly, however, is that the regulations − for the first time − specify the way in which employers can marry the efficiency of delivering benefits under through a defined benefit plan with the reduced financial volatility of a defined contribution plan. In short, the regulations make possible a new design for retirement benefits that may prove attractive for employers and employees alike: the shared-risk pension plan.”

To read more from Covington, click here.
ERIC members and trial members can read more about the regulations here.

Washington Post Publishes Letter from ERIC on Pension Smoothing

The Washington Post recently published a letter from the ERISA Industry Committee (ERIC) on pension smoothing in its Letters to the Editor section. The commentary, "‘Pension smoothing’ allows companies to follow the economic environment", explains that ERIC takes issue with the characterization of pension smoothing as a “budget gimmick”.

ERIC stated that “Pension smoothing allows companies to fund pensions using long-term external market conditions and assumptions.” The letter explained that pension funding is subject to volatility and can discourage companies from continuing to sponsor plans. 

ERIC notes that the Federal Reserve has maintained artificially low interest rates, which have inflated pension liabilities and indicates that companies should not be required to make contributions based on inflated amounts.

To read more, click here.

PBGC Director Gotbaum Announces Resignation

Josh Gotbaum, who has been Director of the Pension Benefit Guaranty Corporation (PBGC) for the past four years, on July 11 announced that he will be stepping down from the position in August to return to the private sector.

He reportedly was the longest serving director of the agency. Until a replacement is nominated by the Obama Administration, PBGC Chief Management Officer Alice Maroni will serve as acting director.

For more information, click here.
ERIC members and trial members can read more here.

Senate Considers Pension Downsizing Bill

The Senate Health, Education, Labor and Pensions Committee recently approved legislation that would amend the Employee Retirement Income Security Act (ERISA) to clarify the definition of “substantial cessation of operations” for purposes of section 4062(e). In “Senate Committee Advances ERISA Amendments Impacting PBGC”, PlanSponsor.com explains that:

“The Senate’s Health, Education, Labor and Pensions (HELP) Committee advanced a bill seeking to better define rules for protecting pension assets when companies downsize or close. Congress may be deadlocked on any number of issues, but the HELP Committee was able to reach strong bipartisan consensus on seven bills in recent weeks—sending the would-be laws to Senate leadership for potential deliberation before by the full upper house. One of the pieces of legislation, known as S. 2511, would amend the Employee Retirement Income Security Act (ERISA)—specifically the sections pertaining to “pension downsizing liability rules.”

For more information, click here.
ERIC members and trial members can read more here.

Buck Consultants Evaluates PBGC Coverage of Shutdown Benefits

In “Slim chance for PBGC coverage of shutdown benefits under final rule”, Buck Consultants explains that:

“Final PBGC regulations tightly limit the shutdown and other ‘unpredictable contingent event benefits’ that are eligible for PBGC’s guarantees when a single-employer plan undergoes a distress or involuntary termination. The regulations implement a PPA provision, effective for events that occur after July 26, 2005, that sets the date the event triggering the benefit occurs as the earliest date the phase-in period can begin for these types of benefits. Plan administrators have a responsibility to reflect this change when paying benefits beginning on a plan’s proposed termination date.”

To read more, click here.

New Study Reveals PBGC Premium Increases Bring Significant Job Loss

The Pension Coalition unveiled a new study, Increasing Pension Premiums: The Impact on Jobs and Economic Growth, revealing the significant economic impact and job loss that would accompany the proposed billions of dollars in increases to Pension Benefit Guaranty Corporation (PBGC) premiums. The proposed increases—essentially a tax hike—limit the ability to invest, create jobs and grow the economy. Employers sponsoring pension plans are already reeling from $17 billion in premium increases enacted over the past two years—adding billions more in unnecessary costs will put an anchor on economic growth.

To read more, click here.

ERIC and Other Organizations Urge Congress to Oppose PBGC Premium Increases

In a letter to Congress, The ERISA Industry Committee (ERIC) and over 60 other organizations and companies urged Congress to oppose further PBGC premium increases. The letter states:

“The undersigned organizations represent thousands of employers who provide retirement benefits to millions of workers. We urge you to protect these job-creators, workers, and their retirement security by opposing any efforts to further increase premiums paid to the Pension Benefit Guaranty Corporation (PBGC) by sponsors of single-employer defined benefit plans.”

To read more, click here.

Towers Watson Finds Defined Benefit Plans Continued to Improve Financially in 2013

In “Financial Health of Largest U.S. Corporate Pension Plans Improved Sharply in 2013, Towers Watson Analysis Finds”, Towers Watson reports that defined benefit plans continued to see improvement financially in 2013. In the article, Towers Watson states:

“The financial health of corporate America's largest pension plans improved significantly in 2013 as funding improved to a level not seen since the start of the financial crisis, according to a new analysis by Towers Watson (NYSE, NASDAQ: TW), a global professional services company. The analysis cited rising interest rates, which lowered liabilities, and moderate investment returns as the primary reasons for the overall improvement.”

To read more, click here.

Pension Smoothing Resurfaces in Senate Bill to Extend Unemployment Benefits

A proposal to extend the interest stabilization provision included in the previously enacted MAP- 21 legislation has resurfaced in another bill to extend unemployment benefits, but this time in legislation sponsored by Senate Republicans.

Senator Dean Heller (R-NV) on March 6 introduced legislation that would maintain segment rates within 90% to 110% of 25-year average rates through 2017, and then incrementally expand the corridor to 70% to 130% after 2020. Six other Senate Republicans are also cosponsoring the legislation.

ERIC members and trial members can read more here.
The bill is available here.

ERIC Urges Treasury to Expand Options and Provide Permanent Nondiscrimination Relief for Closed Defined Benefit Plans

The ERISA Industry Committee (ERIC) today submitted comments to the Department of Treasury and Internal Revenue Service (IRS) urging the Agencies to provide permanent relief and additional options for frozen defined benefit plans to satisfy the nondiscrimination testing requirements under the Internal Revenue Code.

To read more, click here.

The tax implications of lump-sum payouts

Charles Clark of Milliman analyzes lump-sum distributions in “Lump-sum payouts and tax implications”. Mr. Clark explains that:

“Over the past few years, there is evidence to confirm that several employers sponsoring defined benefit (DB) pension plans have been settling their plans’ pension obligation to former employees via a single lump-sum payout. It is commonly referred to as a lump-sum cleanup strategy. Some commenters have said that not only has demand for such a strategy not abated, it has accelerated. This blog post will remain neutral on the prudence of implementing such a strategy, as each employer’s goal is unique. Recognizing that employers who implement such strategies spend enormous energy and resources to communicate the consequences and financial impact on those electing the lump-sum payout, it’s questionable whether recipients completely understand the individual tax implications it could personally have on them.”

To read more, click here.

Tips for Lump-Sum Windows

In “Lump-sum windows: It’s in the details,” Milliman explains that:

“Defined benefit (DB) pension plans continue to be expensive for plan sponsors, with actuarial and administrative costs. A one-time lump-sum cash-out opportunity offers many advantages to both participants and plan sponsors…It sounds great, but before declaring, “Sign me up!” and forging ahead, there are practical administrative issues to look at to ensure that the final results match your company’s business goals…”

To read more, click here.

Pension Funding Increased Significantly in 2013

In “Corporate Pension Plan Funding Levels Increased Sharply in 2013, Towers Watson Analysis Finds,” Towers Watson reported that funded status for large pension plans increased substantially in 2013. The article indicated that:

“The pension funded status of the U.S.’s largest corporations jumped by 16 percentage points in 2013, year-end analysis shows. Researchers at Towers Watson ascribe the growth mainly to higher stock market returns and rising interest rates. In developing the analysis, researchers examined pension plan data for the 418 Fortune 1000 companies that sponsor qualified defined benefit (DB) pension plans and have a fiscal year ending in December.”

For more information, click here.

PBGC Issues Final Regulations on Flat-Rate Premiums for Large Plans

The PBGC issued final regulations on “Payment of Premiums; Large-Plan Flat-Rate Premium”. The regulations move the flat-rate premium due date for large plans to October 15th; the same date as the variable-rate premium due date. This change is effective beginning with the 2014 plan year.

The ERISA Industry Committee (ERIC) urged the PBGC in a comment letter to streamline the flat-rate and variable-rate premiums when the PBGC proposed this change.

For the final regulations, click here.

ERIC’s comment letter is available here.
ERIC members and trial members can read more here.
To read Buck Consultants’ discussion of the final regulations, click here.

IRS Issues Temporary Nondiscrimination Relief for Certain Closed DB Plans

The Internal Revenue Service (IRS) has issued temporary nondiscrimination relief for certain closed defined benefit plans. Notice 2014-5 is in response to requests from ERIC and other trade associations and individual companies who have requested that the IRS amend section 401(a)(4) to permit closed defined benefit plans to satisfy the nondiscrimination requirements using alternative methods. In addition, various members of Congress sent letters to the Treasury Department urging relief in this area.

Notice 2014-5 permits employers that sponsor a closed defined benefit plan AND a defined contribution plan “to demonstrate that the aggregated plans comply with the nondiscrimination requirements of section 401(a)(4) on the basis of equivalent benefits, even if the aggregated plans do not satisfy the current conditions for testing on that basis.”

ERIC members and trial members can read more here.