Regulatory roundup

May 26th, 2015 No comments

By Employee Benefit Research Group

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

Supreme Court allows suits challenging fiduciary actions beyond ERISA’s 6-year claim filing period
The Supreme Court unanimously ruled that 401(k) plan participants may file a suit challenging the retirement plan’s fiduciaries’ actions that took place before the six-year statute of limitations period allows under ERISA for filing a claim (Tibble v. Edison Int’l, U.S., No. 13-550, 5/18/15). In so ruling, the Court rejected three appellate courts’ views on the timing for filing lawsuits challenging plan fees.

According to the decision, courts cannot dismiss these types of challenges without considering whether plan fiduciaries have fulfilled their duties to monitor those investments during the relevant six-year window.

To read the court’s opinion paper, click here.

PBGC clarifies requirements of proposed rule on multiemployer plans
The Pension Benefit Guaranty Corporation (PBGC) has received inquiries whether its proposed rule on mandatory e-filing for certain multiemployer notices would affect notices to participants. The proposed rule only affects notices to PBGC. As stated in the preamble, the proposed rule would require the following notices to be filed electronically with PBGC: notices of termination under part 4041A, notices of insolvency and of insolvency benefit level under parts 4245 and 4281, and applications for financial assistance under part 4281 (see page 18172, middle column). Further, the proposed rule does not involve the Multiemployer Pension Reform Act of 2014 (MPRA). Comments on the proposed rule are due June 2, 2015

PBGC launches pilot program for smaller asset managers
The PBGC issued a press release announcing a “Smaller Asset Managers Pilot Program” to reduce barriers to competition faced by such firms while maintaining rigorous investment risk and control standards.

To read the entire press release, click here.

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UK pension reform reading list

May 22nd, 2015 No comments

By Javier Sanabria

The United Kingdom’s retirement landscape has changed significantly. Pension reform now provides retirees with broader access to their retirement savings. However, reform has also shifted more post- retirement risk to the individual. This reading list highlights some of the issues at hand.

• “Actuaries warn of retirement cash running out
Many experts believe retirees run a higher risk of depleting their retirement income due to pension freedoms. Colette Dunn comments on results from a survey of industry experts at Milliman’s Forum.

• “Calculating pension income
Advisers need to develop new approaches to help their clients manage new retirement risks. Milliman’s Dunn and Russell Ward discuss solutions that address market risk and inflation risk.

• “A retirement planning model for the new pensions world
In this article, Dunn and Chris Lewis highlight a retirement framework that advisers can employ to match a retiree’s income needs to specific levels of risk.

• “Reform spells healthy future for advice
Reform offers advisers and providers an opportunity to innovative solutions that may help participants navigate the new retirement environment. Milliman’s Dunn and Ward provide their perspectives.

• “Blurred lines of retirement saving
In this article, Dunn highlights important conversations advisers need to have with people at different stages of their retirement planning.

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Risk management roundtable

May 20th, 2015 No comments

By Javier Sanabria

Milliman’s Kamilla Svajgl recently participated in a Pensions & Investments’ roundtable discussion focusing on the current climate of investment risks and behavior.

Here’s an excerpt:

P&I: What kind of strategies would work to help pre-retirees manage risk in this new world of higher volatility and lower returns — and help to keep them invested?

Kamilla Svajgl: Let’s start with the way people define asset allocation and risk. It used to be that “risk” was defined by an investor’s level of equity allocation. For example, 60% equity/40% bond portfolio was used as a proxy for “moderate risk.” There is a fundamental problem with that — a 60/40 portfolio would have experienced mere 7% volatility in the fourth quarter of 2006, but 67% volatility in the fourth quarter of 2008. I don’t think anyone is a moderate risk investor when they’re experiencing 67% realized volatility. These kinds of large swings in portfolio risk are not only highly correlated with sharp declines in the market, but also expose investors to significant behavioral risk of selling when asset values are deeply depressed.

A better way to define risk is by portfolio volatility. For a moderate investor, that might mean an overall portfolio volatility of 12%, for example. So the first step is to stabilize volatility. And the good news is that volatility lends itself very well to short-term predictive modeling. Therefore, while I will not be able to tell you if the market will go up or down tomorrow, I can be very accurate in assessing whether it will be calm or volatile.

The second step of the strategy is to add some additional downside protection for extra cushion. We achieve it by synthetically replicating a long-dated put option within the portfolio. This further reduces losses during periods of significant and sustained market decline. This approach has been used by large life insurance companies during 2008 to successfully hedge their balance sheets.

Combining volatility management and capital protection allows investors to stay invested in equity during calm market conditions, and at the same time protects them during times of crisis.

For a transcript of the entire roundtable discussion, click here.

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Milliman infographic: Pension liabilities

May 18th, 2015 No comments

By Zorast Wadia

When the discount rate increases the projected benefit obligation (PBO), or pension liability, decreases, and vice versa. This relationship explains the volatile nature of pension liabilities and demonstrates why liabilities-driven investment strategies, which manage funded status and limit volatility of pension liabilities and asset returns, are useful.


To read the entire 2015 Corporate Pension Funding Study, click here.

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DOL provides flexibility in timing of annual defined contribution plan disclosures

May 15th, 2015 No comments

By Employee Benefit Research Group

Sponsors of 401(k) and other participant-directed defined contribution retirement plans will have more flexibility in the timing of providing annual plan and investment disclosures to participants, under a direct final rule from the Department of Labor (DOL). Instead of disclosing the required information “at least annually” which the agency had interpreted to mean no more than 365 days after the sponsor provided the prior annual disclosure, sponsors will have up to 14 months to do so. The modification will require disclosures to be made “at least once in any 14-month period, without regard to whether the plan operates on a calendar year or fiscal year basis.”

The change to the timing requirement will ease the administrative burdens faced by many plan sponsors and administrators.

The flexibility provided by the direct final rule is slated to be effective June 17, 2015, and will apply to disclosures made on or after that date, unless the DOL withdraws the rule before then due to adverse comments received.

The DOL’s direct final rule also announces an immediate, temporary enforcement policy (until June 17), so that plan sponsors and administrators may take advantage of the two-month grace period before the June 17 effective date, as long as they reasonably determine that doing so will benefit participants and beneficiaries. The relief granted by the enforcement policy is in addition to the one-time, 18-month “re-set” opportunity provided by the DOL’s Field Assistance Bulletin 2013-02.

For more information about the DOL’s direct final rule or a related proposed rule, please contact your Milliman consultant.

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Plan sponsors: How to keep employees on track for retirement readiness

May 12th, 2015 No comments

By Jay Guanella

Guanella-JayPeople get excited about technology. There are hundreds of websites chronicling the next big thing in technology, presenting information about how a device will save you time and money while providing entertainment. Getting people excited about or even acknowledging a retirement plan is much more complex. Over the years, there have been several new features created to help participants by increasing the flexibility of how they fund their retirements. Participant inertia is a large problem and directly relates to the usage of these new features.

As retirement plan professionals we believe having a solid retirement strategy is a no-brainer. For us, it’s a partnership with the plan sponsor that leads to great results by getting them involved and sharing responsibility of communicating and educating the participants. Human resource professionals have direct contact with employees and a great understanding of the best communication mediums and incentives that drive employees to take action.

There are several tools available for participants to project their retirement income. One of them, PlanAhead for Retirement®, enables participants to input additional income sources and variables to project their replacement incomes. Through the PlanAhead for Retirement tool, there is also a retirement readiness report that provides clients a view of the expected retirement outcomes of their participants on a plan level. The retirement readiness report displays where participants fall in relation to their projected replacement income at retirement. The report allows the client to change several variables such as the target of replacement income, return on investment, and changes to employer contributions. This is further broken out by age, service, and participant contribution rate. This interactive report helps the client make the leap from using current data such as participation rate and average deferral rate to projecting the results in the future.


At a plan sponsor level, using industry-related statistics on participation rate and average contribution rates we can show plan sponsors how they compare to their peers. Any deficiencies in the peer comparison are consulting opportunities. Using their participant demographic data, scenarios can be created to determine how changes to plan design (i.e., adding or increasing employer match) or targeting communication to specific participants encouraging them to take advantage of the benefit provided will improve results.

At an employee level, the medium of communication and the timing of the call to action are also paramount. Coordinating the retirement plan education and enrollment at the same time as other benefit enrollment periods has advantages as the employee is already completing paperwork. Showing an employee general information on plan demographics can also lead to an increase in participation and contribution rates via competition. Inertia is present in all retirement plans. What better way to promote change than to make it a competition, albeit an internal one.

Getting a plan sponsor to act on a retirement plan is just as important as getting the employees to act. As retirement plan professionals, we know that developing a partnership with sponsors can help lead to great results, keeping employees on track and taking steps to more successful retirements—using that flashy new technology that makes it easier for everyone.

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Labor Department proposes new “conflict of interest” fiduciary rule

May 11th, 2015 No comments

By Employee Benefit Research Group

The Department of Labor (DOL) has proposed a definition of “fiduciary” that covers individuals who provide investment advice or recommendations for a fee to ERISA-covered and non-ERISA plans and participants (and individual retirement account (IRA) owners). The proposed rule aims to reduce conflicts of interest that may arise when investment advisers make recommendations that favor their own financial well-being over a client’s best interest. The proposal is the DOL’s second attempt at addressing this concern, having withdrawn a 2010 proposed rule that came under heavy criticism.

This Client Action Bulletin provides an overview of the DOL’s proposed rule and related proposed prohibited transaction exemptions (PTEs) as they apply to plan sponsors and participants (and does not cover the requirements relating to advice given to IRA owners). Although the proposed rule focuses on the defined contribution retirement plan arena, it also has implications for defined benefit plan sponsors and their advisers. In addition, the proposed rule affects a broad range of individual account plans (e.g., 403(b) arrangements), including, potentially, nonretirement programs such as health savings accounts.

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Regulatory roundup

May 11th, 2015 No comments

By Employee Benefit Research Group

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

PBGC updates premium payment addresses
The Pension Benefit Guaranty Corporation (PBGC) has updated addresses for pension plan premium payments made by electronic funds transfer outside of the agency’s electronic filing and payment system.

For more information, click here.

FASB releases accounting standards update on fair value measurement
The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update 2015-07 on fair value measurement (Topic 820) disclosures for investments in certain entities that calculate net asset value per share (or its equivalent).

To read the entire FASB update, click here.

IRS new issue of employee plans newsletter
The latest edition of the IRS’s Employee Plans News provides information on changes to the EP determination letter application processing, new revenue procedure updates related to the Employee Plans Compliance Resolution System (EPCRS), and more.

To read the entire newsletter, click here.

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Milliman awarded ‘Save 10’ recognition for helping workers save for future

May 8th, 2015 No comments

By Javier Sanabria

With more than half of Americans not saving enough for retirement, the Financial Services Roundtable (FSR), Washington’s leading financial trade association, is recognizing Milliman with a “Save 10” award for their tremendous efforts to help their employees prepare for a secure retirement by enabling them to save 10% of their income.


Milliman’s Gerald Erickson receives Save 10 Award from FSR CEO Tim Pawlenty on behalf of the firm.

The newly-launched “Save 10” campaign is a business to business, peer to peer effort to encourage responsible employers to help their employees save for a secure financial future by initiating programs to encourage employees to put aside 10% or more of their income each year.

Milliman’s plan includes a 50% matching contribution on a 6% auto-enrollment provision and a generous profit-sharing contribution. The profit sharing contribution, which has historically been 10% of compensation annually, paired with the matching contribution, provides for high average account balances among participants in the Milliman plan.

“One of the best ways to increase retirement savings in America is through employers and Milliman is leading the way,” said FSR CEO and former Minnesota Governor Tim Pawlenty. “Save 10 will be an easy way for workers to think about saving. There are many companies like Milliman helping to put their employees on the right path to savings and Save 10 will recognize those employers in an effort to encourage others in the marketplace to follow suit.”

One of the cornerstones of Save 10 is to encourage “auto-save” programs. Auto save includes programs such as auto-enrollment in a retirement plan upon being hired and auto-escalating an employee’s savings contributions as their income rises. Nearly 82% of employees save for retirement when their employers offer an Auto Save program – compared with just 64% when employers do not. The Save 10 campaign aims to fundamentally change these facts.

To be considered for recognition as a Save 10 employer, companies must certify that they engage in certain activities that qualify the company as Save 10 certified. These activities include offering a retirement plan, contributing to employee retirement accounts, ensuring employees can “keep 10” by providing access to disability and life insurance plans and other criteria.

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Pension funded status improves by $40 billion in April

May 7th, 2015 No comments

By John Ehrhardt

Milliman today released the results of its latest Pension Funding Index, which analyzes the 100 largest U.S. corporate pension plans. In April, these pension plans experienced a $40 billion increase in funded status based on a $2 billion decrease in asset values and a $42 billion decrease in pension liabilities. The funded status for these pensions increased from 80.9% to 82.6%.


Someone once said April is the cruelest month, but for these pensions last month was less cruel than what happened over the course of the first quarter. We’re still a long ways away from full funded status, but the slight rise in interest rates at least moved things in the right direction to start the second quarter of 2015.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.22% by the end of 2015 and 4.82% by the end of 2016) and asset gains (11.3% annual returns), the funded ratio would climb to 91% by the end of 2015 and 105% by the end of 2016. Under a pessimistic forecast with similar interest rate and asset movements (3.42% discount rate at the end of 2015 and 2.82% by the end of 2016 and 3.3% annual returns), the funded ratio would decline to 78% by the end of 2015 and 70% by the end of 2016.

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