The evolution of the discount rate for measuring employee benefit obligations under AS15(R)

August 27th, 2014 No comments

By Javier Sanabria

This paper by Milliman consultants Danny Quant and Simon Herborn provides an update for the quarter ended 30 June 2014 on discount rate changes as they apply to liabilities under AS15(R), India’s accounting standard for the cost of providing employee benefits. Implied yields have fallen since 31 March 2014. The impact of this fall will depend on the weighted average expected future working lifetime (WAEFWL) of employees.

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Collaborative technologies require rethinking “dos and don’ts” for effective communication

August 25th, 2014 No comments

By Craig Burma

Burma-CraigAs collaborative communication technologies improve, plan sponsors and Milliman colleagues continue adjusting business etiquette to best use these new instruments. Tools such as Microsoft LYNC,, and allow consultants to communicate remotely with plan sponsors to improve service, reduce cycle times, and ultimately reduce costs. However, these productivity gains were far from automatic when these technologies were first implemented.

The humorous YouTube video “A conference call in real life” struck a nerve with many early adopters who have shared similar experiences. The comedy demonstrates the challenges that collaborative communication technologies may present—system audio interruptions, technology incompatibilities, and ambient noise distractions (i.e., the barking dog). It doesn’t help that some of us have attention spans shorter than a child on cotton candy at a three-ring circus. Past the comedic relief, we realized achieving effective use of collaborative communication technologies requires further research.

A process improvement group studied Milliman’s use of collaborative communication technologies. We monitored meetings, collected observable data, and analyzed the results of more than 30 meetings. We were surprised to find the technologies worked fine; the business etiquette established for in-person meetings did not.

From our research, we edited our suggestions into 15 best practices for organizers and 15 best practices for attendees. Here they are:

15 organizer dos and don’ts

1. Don’t plan future sessions outside local business hours of any attendee.
2. Do become highly proficient in the technology before using it in a meeting.
3. Do join at least five minutes in advance to help people checking into the call.
4. Don’t troubleshoot tool issues in session; have a “phone only” option as a backup.
5. Do start on time by utilizing with whoever is there.
6. Do state session objective of the meeting within one minute and ask for concurrence.
7. Do take on screen notes; open documents and annotate as needed.
8. Don’t take dictation; ask participants to instant message (IM) or email long content or updates.
9. Don’t assume silence as agreement; affirm key points by voice.
10. Do advise at five minutes remaining to “hard stop” session at time limit.
11. Do ask “any other items for today?” as a trial call close if session objective is achieved.
12. Do close by thanking everyone for their time.
13. Do summarize session outcomes in emailed notes.
14. Do show the date, time, and attendees on all notes.
15. Do email or post notes online within five minutes of session close.

15 attendees dos and don’ts (all apply to organizer as well)

1. Do read session objective four hours in advance; your mind will prepare itself.
2. Do have your computer and phone charged and in a quiet area.
3. Don’t use a speaker phone next to the keyboard you are typing on.
4. Do mention any nonobjective items at beginning—ask organizer to note.
5. Don’t be within earshot of a (possibly) barking dog or other audio intrusions.
6. Do actively use the mute button if no quiet place is available.
7. Do know when mute is on or off at all times.
8. Don’t listen for name to be called and then pay attention; it’s too late at that point.
9. Don’t put call on hold; everyone has on-hold music and we hear it.
10. Do say your first name and company in one-time sessions of multiple companies.
11. Don’t say your name each time you speak; we probably know your voice.
12. Don’t leave session before close; count on important items at end.
13. Do offer to take items off-line if a discussion is between two attendees only.
14. Do message or mention if you have to leave a call early.
15. Do continually assess session effectiveness and send feedback to organizer.

Milliman employee benefits consultants will continue to use collaborative communication technologies within their organizations and with plan sponsors. But like the telephone, the fax machine, and email in their time, we will continue to update our “dos and don’ts” to make these interactions as seamless as if they were held in person. Adhering to these dos and don’ts will ensure time well spent for both organizers and attendees.

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Regulatory roundup

August 25th, 2014 No comments

By Employee Benefit Research Group

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

DOL issues notice for to review use of brokerage windows in participant-directed individual account retirement plans
The Department of Labor’s (DOL) Employee Benefits Security Administration has published a notice as part of its review of the use of brokerage windows (including self-directed brokerage accounts or similar arrangements) in participant-directed individual account retirement plans covered by the Employee Retirement Income Security Act of 1974 (ERISA).

The Request for Information contained in the notice will assist the DOL in determining whether, and to what extent, regulatory standards or other guidance concerning the use of brokerage windows by plans are necessary to protect participants’ retirement savings. It also will assist the DOL in preparing any analyses that it may need to perform pursuant to Executive Order 12866, the Paperwork Reduction Act, and the Regulatory Flexibility Act.

To read the entire Request for Information, click here.

IRS updated Forms 8717 and 8717-A for determination letters
The Internal Revenue Service (IRS) issued a new version of Form 8717, User Fee for Employee Plan Determination Letter Request, reflecting increases in some fees for 2014. It also updated Form 8717-A, User Fee for Employee Plan Opinion or Advisory Letter Request.

The updated user fee schedule on the form is effective for all determination letter applications postmarked after Jan. 31. The revised form must be used after July 1, the IRS said on the form’s instructions.

To download Form 8717, click here.
To download Form 8717-A, click here.

IRS issues revenue ruling stating some Puerto Rican retirement plans qualify as group trusts

The IRS issued Revenue Ruling 2014-24 stating that certain retirement plans qualified only under Puerto Rico’s tax code may be included on the list of group trust retiree benefit plans eligible to participate in 81-100 group trusts.

Revenue Ruling 2014-24 will be published in the Internal Revenue Bulletin on September 8, 2014.

To read a copy of Revenue Ruling 2014-24, click here.

Bureau of Labor Statistics issues annual health and retirement plan provisions survey
The Bureau of Labor Statistics has issued the National Compensation Survey: Health and retirement plan provisions in private industry in the United States, 2013. The National Compensation Survey (NCS) provides comprehensive measures of compensation cost trends, the incidence of benefits, and detailed benefit provisions. This bulletin presents estimates of the detailed provisions of employer-provided health and retirement plans in private industry in 2013.

To read the entire survey, click here.

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HATFA provides opportunities to reduce 2013 and/or 2014 cash contributions and 2014 PBGC premiums

August 22nd, 2014 No comments

By Tim Herman

Herman-TimThe recently enacted Highway and Transportation Funding Act of 2014 (HATFA-14) provides opportunities for plan sponsors to reduce cash contributions and PBGC premiums. For the approaches that involve contributions for the 2013 plan year, prompt action is needed to ensure the applicable funding requirements are satisfied. For calendar year plans, the final date to designate cash contributions and/or add excess contributions to the prefunding balance for the 2013 plan year is September 15, 2014.

HATFA opportunities
1. Reduce cash contributions required for the 2013 plan year.
• Plan sponsors may optionally revise the 2013 actuarial valuation (absent an election to opt out of the HATFA relief for 2013).
• With the use of the higher interest rates for the cash funding valuation, the minimum required contribution may be lower.

2. Reduce cash contributions required for the 2013 and 2014 plan years
• Plan sponsors may optionally revise the 2013 actuarial valuation (absent an election to opt out of the HATFA relief for 2013).
• Plan sponsors are required to revise the 2014 actuarial valuation.
• With the use of the higher interest rates for the cash funding valuations, the total minimum required contributions (combined 2013 and 2014 plan years) may be lower.

3. Reduce 2014 PBGC variable rate premiums
• Revise the 2013 actuarial valuation to reduce the minimum funding requirements for the 2013 plan year.
• Revise the 2014 actuarial valuation to reduce the minimum funding requirements for the 2014 plan year.
• Confirm that contributions are sufficient to satisfy both 2013 and 2014 minimum funding requirements.
• Designate some or all of the cash contributions previously used for the 2014 plan year as receivable contributions for the 2013 plan year.
• This reduces the unfunded liability for PBGC variable rate premium.

4. Manage credit balances for 2013 and 2014 plan years
• Revise the 2013 actuarial valuation to reduce the minimum funding requirements for the 2013 plan year.
• Revise the 2014 actuarial valuation to reduce the minimum funding requirements for the 2014 plan year.
• Confirm that contributions are sufficient to satisfy both 2013 and 2014 minimum funding requirements.
• Create/use credit balances to optimize the plan sponsor’s use of cash.

Some plan sponsors may decide forego the opportunities provided by HATFA. One example is a plan sponsor with planned cash contributions to reach a specified funding threshold. These plan sponsors will still need to revise the 2014 actuarial valuation to reduce the minimum funding requirements for the 2014 plan year (required). However, they may elect to opt out of the HATFA relief for 2013 and satisfy 2013 plan year minimum funding requirements by making contributions based on the 2013 actuarial valuation results prepared under the MAP-21 rates.

Cash savings opportunities under HATFA 2014 will vary by a plan’s funded status, amount of credit balances available, etc. Also, different plan sponsors will have different goals and objectives regarding cash funding to the pension plan. Your Milliman consultant can help you review the opportunities that are available and decide on a course of action that is appropriate for your situation.

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Google+ Hangout: Pension Funding Index (August 2014) and the implications of HATFA

August 20th, 2014 No comments

By Javier Sanabria

The funded status of the 100 largest corporate defined benefit pension plans decreased by $5 billion during July as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose from $252 billion to $257 billion at the end of July, primarily due to declines in equity and fixed income returns during July. As of July 31, the funded ratio decreased from 85.3% to 85.0% since the end of June.

In this month’s PFI Hangout, Zorast Wadia discusses the study’s latest results and the pension smoothing provisions related to the Highway and Transportation Funding Act of 2014 (HATFA).

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Thrift Savings Plan for all Americans?

August 19th, 2014 No comments

By Alexandra Moen

Moen-AlexRecently, members of Congress reintroduced the idea of opening the government-employees-only Thrift Savings Plan (TSP) to all Americans not currently covered by an employer-sponsored plan. Right now, that number is estimated at 78 million U.S. workers. According to the Bureau of Labor Statistics, as of early 2013, 68% of all workers had access to a defined benefit (DB) or defined contribution (DC) plan and 54% were enrolled. The vast majority of workers not covered are part-time or seasonal employees. The government recognizes that help is needed, and the TSP proposal is the latest attempt.

In place since 1986, the Thrift Savings Plan (TSP) has provided federal employees and military service members with retirement savings. It is a defined contribution plan, similar to 401(k) plans offered by corporations. A governing board, consisting of six people who are presidentially appointed, administers the plan. A variety of issues should be considered with this proposal, but there are a few important advantages and disadvantages.

• The most important aspect of this proposal is that it would provide payroll-based savings to millions of American workers—people who do not now have access to employer-sponsored retirement savings accounts.
• The Thrift Savings Plan is a simple plan with an auto-enrollment feature, six investment choices, and low fees.
• Because it is run by government agencies, taxpayers are technically funding the costs of the plan, so opening it to all Americans is a fair proposal.
• Increasing the TSP population this significantly would have a profound impact on the retirement savings industry that is hard to predict. Both private and government providers may benefit from increased competition.

• Administration of the TSP would require a major upgrade at a minimum, and possibly an entirely new system.
• With TSP membership this massive, government agencies would have a greatly increased, more powerful role in the retirement savings industry, and selection of investment fund options might take on a political element (at least the perception of such). This is the biggest concern that has been voiced.
• Potential compliance issues would be introduced as the TSP is exempt from ERISA and Internal Revenue Service regulations that govern the private sector. Independent review/oversight of the TSP would have to be in place. The TSP is required to adhere to regulations under the Federal Employees’ Retirement System Act (FERSA). These regulations are more lax.
• The conservative investment options offered by the TSP deliver the security and returns associated with long-term Treasuries, which are not protected against inflation.

All employees deserve the availability of a retirement savings plan. The difficulty lies in determining the best option to accomplish that goal. Inviting American workers not covered by an employer-sponsored plan to the TSP may not represent the best solution. The administration-sponsored “myRA” is already taking a step in that direction. This starter retirement account offered by the Department of the Treasury gives workers access to the most conservative of the six TSP funds, the G fund. MyRA will serve as an important first attempt, on a manageable scale, and will provide important input to the comprehensive solution. The time may be right for Congress to undertake a complete review of this area. Hopefully, employers will be included in these discussions.

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Corporate pension funded status drops by $5 billion in July

August 14th, 2014 No comments

By John Ehrhardt

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In July, these plans experienced a $3 billion decrease in pension liabilities and an $8 billion decrease in asset value, resulting in a $5 billion increase in the pension funded status deficit.


For months it’s been interest rates driving up the deficit, but in July the rates cooperated and it was instead poor financial market performance negatively impacting funded status. We’ve seen the deficit increase by more than $70 billion so far in 2014.

This month’s study includes perspective on how the Highway and Transportation Funding Act of 2014 (HATFA) may affect pension contributions next year.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 4.10% were maintained, funded status would improve, with the funded status deficit shrinking to $237 billion (86.1% funded ratio) by the end of 2014 and to $202 billion (88.2% funded ratio) by the end of 2015.

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Master limited partnerships: An option for investment diversification

August 14th, 2014 No comments

By Javier Sanabria

Diversification is an important part of a sound investment strategy. Yet achieving true diversification requires investment vehicles that have low correlation to one another—in other words, they don’t react in a similar manner to market developments. During periods of significant economic growth, typical investments tend to demonstrate significant correlation, even across dissimilar industries. Investments that are minimally correlated with the market as a whole are challenging to find. This, plus a history of strong returns, may explain a growing interest in investments known as master limited partnerships (MLPs).

In this paper, Milliman’s Jeff Chalk provides an overview of what MLPs are, their potential benefits, risks, and tax treatment, and the vehicles available for investing in them.

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It’s PPA restatement time! … wait, what’s PPA restatement?

August 13th, 2014 No comments

By Brandy Cross

Cross,-Brandy_mugShotLet’s start from the beginning.

If your qualified defined contribution (DC) retirement plan uses a base plan document with most of the basic features of the plan and an adoption agreement that allows you to select some specific plan features (as opposed to having an individually drafted plan document where there is just one document written specifically for the provisions of your plan), then you have a preapproved plan document.

Almost a decade ago, the Internal Revenue Service (IRS) determined that all preapproved plans would have to be restated periodically — every six years to be exact. This would allow them to pull in all of the law changes in the previous six years and hopefully make the plans easier to read, administer, and review.

The first cycle was referred to as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) restatement, which was to be completed no later than April 30, 2010.

In early 2014, the IRS released the approval letters to sponsors of preapproved plans for the second cycle, referred to as the Pension Protection Act of 2006 (PPA) restatement. The PPA restatement brings in required changes from that legislation, as well as all subsequent regulatory changes — including Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) and Worker, Retiree and Employer Recovery Act of 2008 (WRERA).

All plans that use a preapproved plan document must be restated before April 30, 2016. Failure to amend by this date will require the plan to submit an application to the IRS, through its Voluntary Compliance Program (VCP), to correct this error. IRS VCP fees as well as preparation fees will apply, and could be hefty depending on the size of the plan.

Milliman is in the process of working with plan sponsors utilizing our preapproved DC plan document services to complete the restatement prior to the above deadline.

Now is an excellent time for every plan sponsor to review the plan provisions to ensure they are in line with actual plan operations, as well as to ensure that the plan is meeting the goals and needs of the plan sponsor and plan participants.

Reviewing the plan provisions with your Milliman consultant at the time of restatement is both beneficial and cost-effective.

Some items that the plan sponsor should be reviewing include:

Eligibility: Are participants entering the plan when they should? Once eligible, is there anything that can be done to encourage participation in the plan? Should auto enrollment or other provisions be considered to get participants into the plan faster?

Plan design/contributions: Do the plan design and contributions elected and allowed under the plan meet the needs and goals of plan sponsors and participants? Each plan, plan sponsor, and participant population is unique. Visit with your consultants and advisors to see if there is anything you could be doing differently.

New provisions: Are there new provisions added in recent years, such as in-plan Roth conversions, or changes to base document language, such as the use of forfeitures and ERISA recapture accounts, that might make sense to review against the way your plan is operating?

Compensation: Is the correct compensation being provided to your plan’s recordkeeper or administrator? Plans should take this time to review the compensation definition in the plan document to make sure that it matches the compensation used by the payroll systems to determine contributions and benefits. The IRS finds compensation errors one of the most frequent errors made in qualified retirement plans.

When the restatement process is complete, you should receive a new signature-ready adoption agreement, a copy of the base plan document, and the IRS approval letter of the preapproved plan document, as well as an updated Summary Plan Description. You will want to make sure to maintain copies of all plan documents, including superseded versions for the life of the plan, plus six years.

Remember, changes to the plan document are fiduciary decisions, and should be reviewed carefully with your consultant and plan’s legal counsel.

Happy PPA restatement!

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The end of SSA letter-forwarding service poses an obstacle for plan sponsors

August 12th, 2014 No comments

By Javier Sanabria

The termination by the Social Security Administration (SSA) of its letter-forwarding service creates a hindrance for retirement plan sponsors. The service allowed sponsors to mail letters trying to locate missing participants regarding their benefits as required under ERISA.

In the latest issue of Milliman’s DB Digest, Alexandra Moen addresses the implications sponsors face in fulfilling their ERISA obligations. Here is an excerpt:

ERISA, IRS, SSA, and DOL regulations have consistently emphasized “reasonable methods” when attempting to locate participants. The SSA and IRS letter-forwarding services have historically provided fiduciaries great confidence that all appropriate steps had been taken. Free Internet search sites and social media can be unreliable and inaccurate. Are these methods “reasonable” if they fail to locate a participant? Several questions regarding these government agency announcements remain, but it seems certain that plan sponsors will now have to put more time, money, and effort into these required searches for plan participants and beneficiaries.

Many plan documents do not include wording about participants who are unable to be located. It is permissible to forfeit the benefit after all reasonable means have been exhausted, as long as the benefit would be reinstated if the participant makes a claim for it. Plan sponsors may also wish to consider adding wording to the Summary Plan Description or website telling the participant of their responsibility to inform the plan of address changes, especially if their benefit could be forfeited.

To read more DB Digest articles, click here.

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