Monthly Archives: December 2010

Don’t keep it a secret!

Denise FosterPension plans may be one of the best kept secrets of employers. It’s not a surprise when you think about it. Employees don’t interact with this benefit much during their careers. For years, employers have given pension plan information to new hires via an orientation packet, which has typically been a ream of paper containing an overwhelming amount of information.

While small changes may have been made, the changes themselves usually haven’t resulted in a significant communication campaign and so employers are silent … and employees are unaware. If employees know they have this benefit, in most cases they don’t understand the value or how it works. What kind of benefit is this?

For many years, I’ve seen clients spend significant money (certainly more lately) to maintain a healthy pension plan and spend little to nothing to see that people understand and appreciate the effort. Go figure.

Effective pension plan communication can start with something as simple as providing a better explanation with required notices. If participants don’t understand the information, in this economy particularly, they will imagine the worst. If it isn’t good news, employers should be straight with their employees about what’s happening, and why and how they’re affected. If you have a pension plan weathering the storm, explain how the benefit works, define unfamiliar terms, share an example, and demonstrate the value. Show how the pension plan fits into the overall benefit strategy by providing a total compensation or total reward statement. Just don’t keep one of your most valuable benefits a secret!

Is the DOL on the right path in requesting more disclosures on target date funds?

Jeff_MarzinskyRecently the Department of Labor (DOL) released a proposed rule that would amend both the qualified default investment alternative (QDIA) regulation and the participant-level disclosure regulation.

So what’s the new proposal looking for? More details on target date funds (TDFs), some charts and graphs on the asset allocation of the investment, and details on the “target” or relating to the TDFs included in a retirement plan.

Disclosure is important. Over the next year, participants will be getting much more information regarding their retirement plans. Will participants read through these new and newly proposed TDF disclosures and the other pieces—I hope that they do, and get a better understanding of the retirement plans that they participate in, the investment options available, and the costs. Regarding TDFs, participants must be provided with clear explanations of where their money is being invested, if they have not provided direction.

Much of the requirements rest on the shoulders of plan sponsors to the retirement plans that employees participate in. As fiduciaries to retirement plans, sponsors will be front and center in the disclosure requirements, or at least responsible for assuring they are met. So it is important for sponsors to have a good grasp of what the investments are in their plan and, in the case of QDIAs and disclosures to participants, that the disclosures are being made.

More importantly, for the TDFs in a retirement plan the sponsor must have a detailed understanding of the allocations and glide-paths and whether the funds are designed to be “to” or “through” funds.

The DOL release can be found here. The Client Action Bulletin on this subject is available here.

Two scenarios for pension funded status

Investment Management Weekly picks up on the results of the latest Milliman Pension Funding Index, and in particular looks at the most optimistic and most pessimistic two-year forecasts:

…according to the “most optimistic scenario,” pension plans could reach a full funded status by 2012 should they assume a 12.1% annual asset return and discount rate of 6.45%, the study said.

At the other end of the spectrum, through a pessimistic view, Milliman stated in the release that a 4.1% return and 3.95% discount rate would drop funded status below 65% by the end of 2012.

Here are those projections:

Guaranteed lifetime withdrawal benefits

Penton Insight looks at the resurgent popularity of variable annuities, and in particular the desire for guaranteed lifetime withdrawal benefits. Here is an excerpt:

One of the most popular variable annuity features is the guaranteed lifetime withdrawal benefit. No matter how the underlying investments perform, policyholders typically are guaranteed at least 5 percent of their benefit base in income annually for as long as they live. Eighty-seven percent of those who buy variable annuities elect this rider, LIMRA says. “From my perspective, variable annuity sales are definitely picking up,” says Kenneth P. Mungan, actuary with Milliman, a Chicago-based actuarial firm. “Customers are clearly attracted to the guaranteed living benefits, and I expect that trend to only increase over time.”…

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