Monthly Archives: June 2012

Defined benefit plan statements: Getting by or adding value?

The June issue of Milliman’s DB Digest summarizes the benefit statement requirements of the Pension Protection Act (PPA) that are related to defined benefit (DB) plans and explores some considerations to help individuals determine the best alternatives for both plan sponsors and plan participants.

Read this month’s DB Digest here and share it with your colleagues.

GASB improves pension accounting and financial reporting standards

The Governmental Accounting Standards Board (GASB) yesterday announced they have approve two new standards that will substantially improve the accounting and financial reporting of public employee pensions by state and local governments. The press release is available here. Here is an excerpt from the release:

“The new standards will improve the way state and local governments report their pension liabilities and expenses, resulting in a more faithful representation of the full impact of these obligations,” said GASB Chairman Robert H. Attmore. “Among other improvements, net pension liabilities will be reported on the balance sheet, providing citizens and other users of these financial reports with a clearer picture of the size and nature of the financial obligations to current and former employees for past services rendered.”


Regulatory roundup

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

IRS issues proposed regulations under the anti-cutback rules of Section 411(d)(6)
The Internal Revenue Service has issued proposed regulations that would provide guidance under the anti-cutback rules of Section 411(d)(6) of the Internal Revenue Code, which generally prohibit plan amendments eliminating or reducing accrued benefits, early retirement benefits, retirement-type subsidies, and optional forms of benefit under qualified retirement plans. These proposed regulations would provide an additional limited exception to the anti-cutback rules to permit a plan sponsor that is a debtor in a bankruptcy proceeding to amend its single-employer defined benefit (DB) plan to eliminate a single-sum distribution option (or other optional form of benefit providing for accelerated payments) under the plan if certain specified conditions are satisfied.

The proposed regulation can be read here.

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Assessing today’s retirement landscape

Longevity poses a challenge for retirees with defined contribution plans, because there is always risk of someone outliving his or her savings. A new application for defined benefit plans as a supplement to defined contribution plans may help provide longevity protection.

In his new article on, Zorast Wadia outlines this approach, known as a “longevity plan.” Here’s an excerpt explaining how such a retirement model would work:

“In order for the longevity plan concept to succeed, it will need to provide annuity protection to plan participants, be relatively easy to understand and administer and be affordable to plan sponsors. To accomplish the goals of longevity protection and cost reduction, some changes will be necessary to current pension laws including allowing employers to limit plan participation to later ages (e.g. age 45 and beyond) and defer benefit commencement to later ages (e.g. age 75 and beyond). To allow for ease of administration while still offering longevity protection, forms of payment would need to be limited to life and joint and survivor annuity options. The longevity plan would also eliminate investment risk since annuitants would receive guaranteed employer-funded benefits from the longevity DB plan. With the longevity DB plan in place, participants would be free to adjust their investment strategy with respect to benefits accruing from their DC plans. Participants with a higher risk tolerance could invest more aggressively with respect to their individual savings accounts.”

For more on this concept, check out another article by Wadia, “Longevity Risk & Retirement,” which first appeared in the spring 2012 issue of the Actuarial Digest.

Previous Milliman Insight articles have also assessed longevity plans. “Saving for retirement: What can employers do?” discusses how a “layered longevity plan can potentially ensure that people do not outlive their retirement balances for an uncertain duration.”

For more perspectives on longevity risk and retirement planning read our four-part retirement landscape series, where our team of Milliman consultants accesses the array of risks facing retirees and plan sponsors, and provides feasible solutions to them.

Retirement Town Hall rewind

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.

Locked in
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.

June 2012 pension funding index roundup

Pension Funding Index, June 2012

"Milliman analysis: Corporate pension gains evaporate in May… A $30 billion decline in assets and a $60 billion increase in liabilities combine to erase year-to-date gains in pension funded status"

Storified by Milliman, Inc. · Mon, Jun 11 2012 12:04:40

On June 6, Milliman, Inc. released the results of its latest Pension Funding Index, which consists of 100 of the nation’s largest defined benefit pension plans.
An abstract for this month’s Pension Funding Index can be read here:
Pension Funding Index, June 2012 – Milliman InsightPension Funding Index, June 2012 Abstract The funded status of the 100 largest corporate defined benefit pension plans dropped by $90 bil…
The entire analysis can be read here:
Milliman – Employee Benefits – Pension Funding IndexAbout the Milliman 100 monthly Pension Funding Index How are the 100 largest U.S. corporate pension plans faring on a monthly basis? How …
Media coverage of the Pension Funding Index were reported on, Pensions & Investments, The Sacramento Bee, and
May ‘horrific’ month for corporate pensions | BenefitsProDespite being a terrible month for the earnings of corporate pensions, experts say … it could have been worse. According to the Millima…
Milliman: May funding ratio decline wipes out 2012 gainsThe combined funding ratio of the 100 largest U.S. corporate pension plans dropped to 78% in May, erasing gains made in 2012, according t…
Milliman analysis: Corporate pension gains evaporate in May – The Sacramento BeePRNewswire/ — Milliman, Inc., a premier global consulting and actuarial firm, today released the results of its latest Pension Funding I…
Milliman Analysis: Corporate Pension Gains … – TheStreet.com2 days ago… in liabilities combine to erase year-to-date gains in pension funded … said John Ehrhardt, co-author of the Milliman Pe…
News of the June’s index was shared on Twitter rather quickly
Pension plan funding plunges in May: Milliman Insurance
Corporate pension funding drops below year end 2011 levels Ehrhardt
Pension plan funding plunges in May: Milliman Geisel
Milliman – Employee Benefits – Pension Funding Index Watson
Pension plan funding plunges in May: Milliman #pensions #benefits #riskmanagement #retirementMatt Dunning
RT @millimaninsight: "2012 gains evaporate as corporate #pension funded status sinks by $90 billion in May." Download Pension Funding Index: hodge
Milliman’s monthly Pension Funding Index projects the funded status for pension plans included in the Milliman Pension Funding Study, reflecting the effect of market returns on plan assets and the impact of interest-rate changes on plan liabilities.

Milliman’s 2012 Pension Funding Study analyzes the 100 largest US corporate pensions. In 2011, these pensions were defined by record-low discount rates, which led to record-high pension liabilities and a $326.8 billion pension funding deficit. Read the study here:

Pension Funding StudyDecline in discount rates drives pension plans to record deficits in 2011 Impact of declining discount rates evident in 2011 financial st…
More about Milliman and employee benefits:
Milliman – Employee BenefitsWe are pioneers in the retirement plan industry, providing unparalleled benefits consulting and administration to employers for more than…
Retirement TownhallIn 2010, 60% of large pension plans invested in hedge funds (up from 11% in 2001) and 92% of large plans invested in private equity. Hedg…
About Milliman Inc. and our insight.
Milliman – About usMilliman is among the world's largest independent actuarial and consulting firms, … casualty insurance, Milliman serves the full …
Milliman Insight – HomeMilliman’s Insight online presents the firm’s thought leadership on a range of topics, including healthcare, employee benefits, property …