Explaining the Milliman Sustainable Income Plan design

Recently, Financial Adviser magazine published an article highlighting the benefits of the Milliman Sustainable Income Plan™ (SIP), which can provide sponsors and participants the best of both defined benefit (DB) and defined contribution (DC) plan worlds. Milliman consultant Kelly Coffing is quoted explaining the SIP plan design.

Here is an excerpt:

“The design is truly sustainable in a way that defined benefit and defined contribution plans are not,” explains Kelly Coffing, Milliman principal and consulting actuary, based in Seattle. The SIP, she continues, offers “lifelong income and funding stability while maintaining a balanced portfolio to get the best risk adjusted returns.”

How? The SIP is technically a defined benefit plan, but one in which benefits adjust up or down with the plan’s performance, “thereby keeping assets and liabilities in balance,” says Coffing. The plan establishes a base investment return or “hurdle rate.” If annual returns equal that rate, the plan functions like any other defined benefit plan. But if they lag or surpass that rate, the benefits increase or decrease accordingly.

“Like a traditional defined benefit plan, participants receive a lifelong monthly benefit,” says Coffing. “Unlike a traditional plan, the level of the monthly benefit is not fixed, but can adjust, up or down, based on actual investment returns of the plan.”

Contributions, on the other hand, don’t have to adjust. The SIP is designed for a specific contribution level that doesn’t change from year to year and, as such, is kept fully funded in all economic environments. “The contributions are directly tied to the benefit levels desired in the plan and are mostly related to the level of contributions employers want to make for retirement and/or the desired level of benefits to be provided,” says Coffing.

To learn more about the SIP, watch the following video.

The Stabilized Variable Annuity Pension Plan (VAPP) is now the Milliman Sustainable Income Plan™ (SIP).

Population projection helps community plan tribal member benefits

One Native American community engaged Milliman to learn how membership growth would affect the funding needed to finance benefit programs for its citizenry. In this article, consultant Bruce Mitton explains the firm’s population projection which helped tribal leaders understand the financial implications of the community’s long-term growth rate.

Here is an excerpt:

Milliman prepared a report for the community leaders that showed that the size of the citizenry was likely to increase 50% over the next 20 years. While this is a significant increase, the previous estimate led them to believe that they would reach this size in a period of only 10 years instead of 20. We were able to provide a more realistic prediction of how their group would change over time. The citizens’ average age was expected to increase from about 26.8 years to roughly 29.6 years over the same 20-year period. Finally, we were able to provide them with count estimates in five-year age groups at five, 10, 15, and 20 years in the future, as well as the expected number of deaths. They were very happy with the refined estimate because it will enable them to match the various programs with the appropriate age groups and, using the future counts, develop budgets and make more definite plans for the future.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.


Report on DOL’s fiduciary conflict-of-interest rule
The Congressional Research Service has released “Department of Labor’s 2016 Fiduciary Rule: Background and Issues.” The report explores the DOL’s rule as it applies to pensions, individual retirement accounts, and investments.

To download the report, click here.

IRS updates procedures for multiemployer pension suspension applications
The Internal Revenue Service (IRS) has revised the procedures for multiemployer pension plans applying to suspend benefits to avoid insolvency. IRS Revenue Procedure 2017-43 clarifies that multiemployer plans that are in critical or declining status and applying for a benefit suspension must project withdrawal liability payments as part of the projection of a plan’s available resources. It also specifies who should be provided sample notices as part of the application.

For more information, click here.

Implementing GASB 75 rules

In 2016, new Governmental Accounting Standards Board (GASB) rules were implemented for postemployment benefits other than pensions (OPEB). Other rules are scheduled to go into effect this year.

Successful implementation of the new rules requires an understanding of various technical concepts related to newly required calculations. In this PERiScope article, Milliman’s Tim Herman discusses the allocation of financial reporting liabilities and expenses for cost-sharing multiple-employer OPEB plans under GASB 75.

This article is part of Milliman’s Governmental Accounting Standards Board (GASB) 73/74/75 series.

Despite steep Q2 discount rate decline, corporate pension funded ratio still ahead of the start of the year

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In June, the funded status of these plans fell by $4 billion, the result of lower-than-expected investment returns and a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The Milliman 100 PFI plans saw their deficit grow from $281 billion to $285 billion with a two basis point drop from May to June. As of June 30, the funded ratio had inched down from 83.7% to 83.5%, though that mid-year number is still slightly above where it was at the start of 2017.

While June saw lackluster investment returns of 0.35%, overall the Milliman 100 PFI assets performed better than expected in Q2—some much needed good news for these plans whose liabilities continue to grow as discount rates decline.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.04% by the end of 2017 and 4.64% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 90% by the end of 2017 and 103% by the end of 2018. Under a pessimistic forecast (3.44% discount rate at the end of 2017 and 2.84% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 80% by the end of 2017 and 73% by the end of 2018.

To view the complete Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

Regulatory roundup

More retirement-related regulatory news for plan sponsors, including links to detailed information.

IRS issues memo on the application of section 409A to back-to-back arrangement
The Office of Chief Counsel of the Internal Revenue Service (IRS) has issued a memorandum (No. 201725027) on the application of section 409A to back-to-back arrangement. According to the memo, “Treas. Reg. Section 1.409A-3(i)(6) provides that the amount of the payment under the ultimate service recipient plan may not exceed the amount of the payment under the intermediate service recipient plan. Therefore, the USR Plan fails to meet the requirements of section 409A because the USR Plan provision providing for a payment to Taxpayer in the event of a Participant’s separation from service before vesting is an impermissible payment event.”

For more information, read the entire memo here.

Higher-paid workers more likely to have access to retirement benefits
According to data published by the Bureau of Labor Statistics (BLS), “Sixty-six percent of private industry workers had access to employer-provided retirement plans in March 2016. Having access means employers offered the benefit, regardless of whether employees chose to participate. Forty-nine percent of private industry workers participated in retirement plans in March 2016. That results in a take-up rate—the percentage of workers with access to a plan who participate in the plan—of 75 percent. Access, participation, and take-up rates were all higher for workers in higher wage groups than for workers in lower wage groups.”

To learn more about the BLS’s data, click here.