Milliman published a cartoon caption contest in the September issue of DB Digest. Wayne Rancourt of Boise Cascade authored the winning caption.
Milliman published a cartoon caption contest in the September issue of DB Digest. Wayne Rancourt of Boise Cascade authored the winning caption.
News and views centered on defined benefit (DB) plans were the focus of our latest Retirement Town Hall discussions. If you weren’t able to read our posts as they were published, don’t fret, we have you covered.
Pension gains evaporate in May
June’s Pension Funding Index was released earlier this month, revealing that a $30 billion decline in assets and a $60 billion increase in liabilities in May combined to erase year-to-date gains in the pension funded status of the nation’s largest 100 defined benefit plans. Read the complete roundup of June’s pension funding index.
Milliman’s John Ehrhardt spoke to the Wall Street Journal and offered his perspective on GM’s decision to lock in high pension obligations. The company will make a lump sum payment option available to about 42,000 salaried retirees and enroll the remainder of salaried retirees into a group annuity purchased from Prudential Insurance Co.
Milliman Protection Strategy
We also featured a new video highlighting the Milliman Managed Risk Strategy, a sophisticated futures-based portfolio hedging strategy. The video showcases the type of risk management that saved insurers $40 billion during the 2008 economic crisis.
Milliman today released the results of its 2012 Milliman Medical Index (MMI), which measures the average healthcare costs for a typical American family of four receiving healthcare through an employer-sponsored preferred provider organization (PPO) plan. The average cost of care for this typical family in 2012 is $20,728. While the 6.9% increase over 2011 is the lowest rate of increase in the 12 years tracked by the MMI, the $1,335 increase surpasses last year’s record of $1,319.
“The average rate of increase this year dips below 7% for the first time since we began analyzing these costs, but the total dollar increase is still the highest we have seen,” said Lorraine Mayne, principal and consulting actuary with the Salt Lake City office of Milliman. “This helps illustrate the challenge of controlling healthcare costs. When the total cost is already so high, even a slower rate of growth has a serious impact on family budgets.”
The MMI’s release date falls during an uncertain time for American healthcare, with the nation awaiting the outcome of the U.S. Supreme Court’s decision on the future of the Patient Protection and Affordable Care Act (PPACA). To date, the PPACA has had only a limited effect on healthcare costs for families covered by an employer-sponsored PPO plan; longer term, the implications may be more pronounced, and will depend on a number of dynamic and interrelated factors.
“We face a number of different potential scenarios depending on the future of reform,” said Chris Girod, principal and consulting actuary with the San Diego office of Milliman. “With this year’s MMI we have tried to map out what those different scenarios may mean for consumers, employers, care providers, and the government.”
As has been the case in prior years, this year’s analysis examines several key medical cost components:
“Some families may be surprised to hear their total average healthcare costs are exceeding $20,000 this year,” said Scott Weltz, consulting actuary with the Milwaukee office of Milliman. “While everyone knows the cost of healthcare is increasing, most people who receive health insurance through their employer are insulated from the true costs associated with the care they receive.”
To view the complete MMI, click here.
As we transitioned from winter to spring we’ve focused on moving from our winter of discontent toward a hopeful spring. If you haven’t been here in a while, we’ve got you covered with this Retirement Town Hall rewind.
Winter of our discontent
With the release of the 2012 Pension Funding Study, John Ehrhardt recently gave us his summary of the last year in pensions: Falling interest rates define 2011 for corporate pensions. In this post, Ehrhardt highlighted all of the major factors that led to 2011’s record funding deficit increase.
Tim Connor and Genny Sedgwick continued their series on What to Look for in 2012 with a look at Funded status and at-risk, in which they note that many plans will continue to be considered “at-risk” according to the Pension Protection Act’s definition in 2012. Further, Connor and Sedgwick anticipate that the debate over PBGC-related issues will continue through the year. Connor and Sedgwick also looked at plans De-risking in 2012 and offer several strategies plans can take to minimize and mitigate risk.
Hope springs eternal
More recently Ehrhardt’s look at the latest full month’s Pension Funding Index, Market rally and rising interest rates reduce corporate pension deficit in March, offered some hopeful news.
Enough about us…
The past few weeks have also included several opportunities for you to tell us how you see the future. First we asked How long is Social Security’s half-life? and found that a third of readers believe Social Security will make up 20%-39% of their retirement income.
Next, Julie Cannaday reminded us of The power of personal touch and asked who’s helping you plan for your retirement. This poll is still fresh so the votes are still coming in.
So now that you’re all caught up, why not share your thoughts and vote in this and other Retirement Town Hall polls right now?
At the age of 50 workers are given a chance to stow a little more money away in their 401(k) plans. The current 401(k) contribution limit for workers who are 50 and over is $22,500. That’s $5,500 more than the younger workers’ contributions limit this year.
Considering that a 2011 Gallup poll revealed that 70% of 50- to 64-year-olds were moderately or very worried about not having enough money for retirement, we’re wondering if these fears lead to bigger contributions from the 50 and over crowd.
Census Bureau data shows that just 3% of people age 65 and older relocated between 2010 and 2011. This is partially just the economy. Demographers say we’re at the lowest level of migration in the United States since World War II. Today’s retirees are facing a host of problems, including record-low interest rates battering portfolios, that may be thwarting their plans to make a move.
Still, retirement, for many, has been synonymous with moving to sunnier climes and downsizing from a big empty nest. Getting out of the nest isn’t as easy as it used to be, though. A recent study from the University of Michigan’s Retirement Research Center on how the recession is affecting those nearing retirement cites a 23% decline in net housing wealth as another major problem. With all of this going on we’re wondering how your retirement plans are being affected.
If you’ve been too busy this month planning some special event for your sweetheart for Valentine’s Day (or a party for that big Abe Lincoln/George Washington fan in your life) here’s what you’ve missed on Retirement Town Hall.
An early start
When’s the best time to start on your nest egg? As soon as you’re out of the nest. That’s why we highlighted the keys to Retirement planning for Millennials in a recent post. We began wondering if those in the retirement benefits world practiced what we preached. So we followed the Millennials post with a poll question asking you about Getting started in your own retirement planning.
Recently we asked readers to tell us how long they would be Delaying gratification before starting to claim Social Security. Speaking of waiting it out, Zorast Wadia noted that the wait was over for pension contributions to start reaching record levels and why he is Looking ahead to $90+ billion in contributions.
Better late than never
Of course the big news of the month so far has been John Ehrhardt’s report that Pension plans begin 2012 by narrowing a record deficit. Ehrhardt stayed busy and participated in a Pension funding discussion on CNBC.
Right on time
Is now the time to move to liability-driven investing (LDI)? A lot of people think so. Do they know what to expect in the process? Not always. That’s why Will Clark-Shim recounted his experience with the twists and turns of Liability-driven investing: Putting it into practice followed by his Two longs make it right? post.
Finally, we always keep you up to speed on the latest in notices and requirements in the retirement benefits world as they happen. Here are some key announcements to consider from the past few weeks:
To stay up to speed on other important dates on the benefits practitioner’s calendar, be sure to follow us on Twitter @millimaneb.
Earlier this month we took a look back at The most important retirement stories of 2011 and what they could mean for 2012. In the meantime, we have been amassing quite a collection of stories in 2012 so it’s time we rewind the young year and catch you up on what you might have missed.
Echoes of 2011
First off, it’s no secret that 2011 battered many a pension. John Ehrhardt noted this in his Bad year for pensions ends badly, recapping December’s Pension Funding Index numbers. We also excerpted some of Ehrhardt’s comments in Pensions & Investments in What to look for from pensions in 2012.
So what happened? Volatility played a big role in last year’s problems and we kicked off the new year by looking at A new approach to pension risk. Meanwhile Jeff Marzinsky offered his Pension plan investment returns: Some thoughts and observations and Stuart Kliternick showed the direct effect of 2011’s Historic low for discount rates on pension plan funding.
What does it all mean looking forward? We’ll have to see how things play out, but it seems clear we should Get ready for record pension contributions. We are continuing to update this blog entry as large employers announce their pension contributions.
In regulatory news, Tim Connor pointed out that there are New FASB rules on multiemployer plan disclosures and the importance of gathering your information early this year.
Your vote counts
We started the year with our Allocation nation poll and found that over 76% of voters didn’t change their 401(k) asset allocations for 2012. Have you? Recently, our poll on employee communications, The medium for your benefits message, asked benefits practitioners how they talk to their employees. You might be surprised by how people are using social media to talk retirement benefits based on the early returns.
That’s the latest from Retirement Town Hall, but be sure to follow us on Twitter @millimaneb to stay up to date on blog posts and important dates on the benefits practitioner’s calendar.
If you’re like a lot of people, you’re probably anxious to put 2011 in the rearview mirror. Yet the biggest stories of 2011 could play out for years to come. So let’s take a look in that rearview mirror and see if there’s anything we can learn from some of the key stories we tracked on Retirement Town Hall in 2011.
A record nobody wants to break
In the third quarter of 2011 the Milliman Pension Funding Index had its second-worst quarter in the history of the study (read the full story). Like a consecutive losses streak, nobody wants to break any records for worst quarter in the study.
How will underfunded pensions start to dig out in 2012? “With interest rates remaining at historic lows and low expectations for investment gains, plan sponsors will be facing record levels of contribution requirements in 2012 and 2013,” says John Ehrhardt.
The Department of Labor (DoL) gathered experts to discuss the trend towards using investments with higher rewards but higher risks in pension plans (read the full story). Investing is all about risk and reward but pension plan managers face unique circumstances when investing people’s retirement money. That’s why many are exploring new approaches to managing this risk.
“The risk management techniques used by variable annuity providers saved insurance companies $40 billion during the financial crisis,” says Tamara Burden. “Pension plans can benefit from similar techniques, especially in this time of record-low interest rates.”
No more Social Security blanket
Changes are afoot at the Social Security Administration (SSA). In 2011 the SSA announced its plan to stop issuing paper checks (read the full story) and statements (read the full story). These moves are certainly eco-friendly, but they are really intended to help the SSA’s bottom line.
What effect will these changes have going forward? “As the world becomes more reliant on technology, electronic deliverables like these make more sense from both a practicality and cost standpoint,” says Tim Connor. “Get used to it, embrace it, and take part in it.”
Downgrades, they’re not just for hurricanes
The day some thought would never come came in 2011. The S&P’s downgrade of the United States was a dramatic event within the investing world that affected nearly everyone (read the full story). The downgrade led to immediate volatility, at the time.
What will be the lasting effects of the downgrade on those who manage retirement plans? “As humans we tend to forget, most of the initial effects of the downgrade have subsided, investors are still buying U.S. debt,” says Jeff Marzinsky. “However this should not lead investors to a false sense of security. The U.S. economy is improving, but still fragile, markets are volatile, and interest rates continue to remain low. Investment policy and diversification are key areas to keep a close eye on, more than ever.”
As exciting as watching paint dry
It’s more of a non-story than a story, but 2011 was something of a regulatory vacuum in which employers operating both defined contribution (DC) and defined benefit (DB) plans waited and waited and waited for regulatory guidance on key issues…and are still waiting.
“There are numerous examples where some regulatory guidance would be quite welcome for plan sponsors,” says Charles Clark. “There are holes in the DB funding rules, many questions still swirling around disclosure rules, and new uncertainty around cash balance plan regulations, just to name a few.”
It seems like everyone’s vision of retirement is different. Some see themselves relaxing on a beach, others see themselves fly-fishing in Idaho. But how many people see themselves going to the office? With the economic crisis in full swing many people are re-envisioning retirement, and that new vision often includes working. So we’re asking you…