Monthly Archives: February 2011

Annuities and interest rates

We’ve talked before about how interest rates affect pension funded status. There are also implications for annuities. Investment News picks up on the potential for interest rates to affect the demand for indexed annuities; here is an excerpt.

Last year was a mixed blessing for carriers that sell the products, which offer a guaranteed minimum return, as well as a return based on the performance of a stock market index. Customers flocked to indexed annuities, at least in part because of new living-benefit features, generating some $32.1 billion in sales, up 7% from 2009, according to LIMRA. But low interest rates made the business less profitable for carriers.

The low-rate environment forced the largest indexed-annuity sellers — Allianz, American Equity Investment Life Holding Co. and Aviva USA — to begin trimming features last fall.

“Now, yields have come back to where they were at the start of 2010, and we’re having conversations again with carriers about enhanced features,” said Tim Hill, a consulting actuary and principal at Milliman Inc.

Carriers had loaded their investment portfolios with cash following the financial crisis and then gradually shifted funds to highly rated corporate bonds in search of yield. At the beginning of 2010, a seasoned corporate bond rated Aaa by Moody’s Investors Service was yielding 5.34%. But yields on top corporates dropped over the summer, falling to as low as 4.31%. (They rose to 5.26% by mid-month.)

That decline sparked a number of product cutbacks, as low yields constrict what carriers can afford to offer in the way of benefits, Mr. Hill said.

America saves?

Today marks the end of “America Saves Week,” which puts us in mind of all things saving-related. A few basic concepts:

Of course it may take more than a week for behavioral changes to take hold. Is it too late to suggest that we make 2011 America Saves Year?

The bucket list

Robert Powell of MarketWatch turns his attention to the question of a “bucket list” and how retirees can accomplish all they hope for in retirement.

Spending time with family and friends is among the most common items on the bucket list. Timothy Harris, a principal with principal at the consulting firm Milliman and the author of “Living to 100 and Beyond,” says, “social connections including family and friends are important and have been shown to add to longevity. This isn’t restricted to FaceBook connections, although that can be a start. Spend, instead, face time with family and friends.”…

Identifying your interests — be it travel or gardening or playing a musical instrument — and what makes you happy are, of course, important. But unless you have a plan and the money to pursue your interests, this bucket list might as well be a sieve.

For instance, Harris said, you might need to consider a phased retirement or delayed retirement. In addition, you’ll need a realistic projection of post-retirement income and expenses. “Financial planning is the key to being able to accomplish the bucket list,” Harris said.

The full article is available here.

EB/employment-based items in the president’s budget proposal

The president released his budget proposal for fiscal year 2012 (which begins October 1, 2011). Congress ultimately will decide whether to translate the proposal (or parts of the proposal) into legislative language.

Provisions in the administration’s proposal for employee benefits, compensation, or employment implications include:

  • A requirement that employers in business for at least two years and that have more than 10 employees offer an automatic-enrollment IRA option with contributions made on a payroll deduction basis, along with a temporary tax credit for employers to do so
  • A doubling of the small employer tax credit (from $500 per year to $1,000 per year) for three years for employers that adopt a new qualified retirement, SEP, or SIMPLE plan
  • Authority for the PBGC Board to increase premium payments, along with a study conducted over two years (with public comment) before implementation and gradual implementation of any increases

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What’s in a name?

David Benbow

I just wanted to take this moment to say goodbye to FAS87.

FAS87 is the accounting standard that actuaries have lived by since 1985 to value pension expense. With the abundance of pension legislation over the last few decades, FAS87 was always a loyal friend, making sure that our plans were correctly accounted for.

Now, alas, the Financial Accounting Standards Board has rechristened FAS87 with the much-less-catchy moniker of FASB ASC 715-30-25. It just doesn’t roll off the tongue quite the same way.

In this era of clever names for new pieces of legislation, couldn’t they come up with something better than FASB ASC 715-30-25? For example, the Heroes Earning Assistance and Relief Tax (HEART) Act required legislators to use a little creativity. And let’s not forget the recent attempt by Congress to pass the Repealing the Job-Killing Health Care Law Act.

It just makes me sad (in a geeky pension-administrator kind of way) that old friends like FAS87 don’t merit the flashy repackaging that new legislation does. It makes me worry that ERISA might be next on the list, to be renamed something cumbersome like Omnibus Legislation Describing Pensioners’, Employees’, and Other Participants’ Lifetime Earnings. Think about it.

Goodbye, FAS87. We’ll miss you.

What if you go broke in retirement?

The Street poses a question that may haunt more retirees than you think:

So what happens if, into your retirement, you run out of money? What options are you left with?

“You hope you have good family and good services in your community and that sort of thing,” says Noel Abkemeier — a retirement actuary for Milliman and an active member of the Society of Actuaries. “Of course when your account runs dry, hopefully you still have Social Security coming in your direction.”

One in six older Americans lives below the federal poverty line, according to a recent government analysis.