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Posts Tagged ‘John Ehrhardt’

Google+ Hangout: Pension Funding Index, September 2014

September 16th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans deteriorated by $22 billion during August as measured by the Milliman 100 Pension Funding Index (PFI). The deficit increased from $259 billion to $281 billion at the end of July, due to a drop in the benchmark corporate bond interest rates used to value pension liabilities. August’s robust investment gain was not enough to improve the Milliman 100 PFI’s funded status. As of August 31, the funded ratio dropped down from 84.8% to 84.0%.

PFI co-author Zorast Wadia discusses the index’s latest results on this Milliman Google+ Hangout.

Corporate pension funded status drops by $22 billion in August

September 8th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In August, these plans experienced a $46 billion increase in pension liabilities and a $24 billion increase in asset value, resulting in a $22 billion increase in the pension funded status deficit.

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It was a strong month of asset improvement, but there’s no counteracting record-low interest rates. Year to date, rates have swollen pension liabilities by $165 billion.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 3.89% were maintained, funded status would improve, with the funded status deficit shrinking to $265 billion (84.9% funded ratio) by the end of 2014 and to $228 billion (87.1% funded ratio) by the end of 2015.

Google+ Hangout: Pension Funding Index (August 2014) and the implications of HATFA

August 20th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans decreased by $5 billion during July as measured by the Milliman 100 Pension Funding Index (PFI). The deficit rose from $252 billion to $257 billion at the end of July, primarily due to declines in equity and fixed income returns during July. As of July 31, the funded ratio decreased from 85.3% to 85.0% since the end of June.

In this month’s PFI Hangout, Zorast Wadia discusses the study’s latest results and the pension smoothing provisions related to the Highway and Transportation Funding Act of 2014 (HATFA).

Corporate pension funded status drops by $5 billion in July

August 14th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In July, these plans experienced a $3 billion decrease in pension liabilities and an $8 billion decrease in asset value, resulting in a $5 billion increase in the pension funded status deficit.

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For months it’s been interest rates driving up the deficit, but in July the rates cooperated and it was instead poor financial market performance negatively impacting funded status. We’ve seen the deficit increase by more than $70 billion so far in 2014.

This month’s study includes perspective on how the Highway and Transportation Funding Act of 2014 (HATFA) may affect pension contributions next year.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 4.10% were maintained, funded status would improve, with the funded status deficit shrinking to $237 billion (86.1% funded ratio) by the end of 2014 and to $202 billion (88.2% funded ratio) by the end of 2015.

What steps can a company take to de-risk a pension plan?

July 21st, 2014 No comments

A recent webinar organized by PlanSponsor asks sponsors if pension de-risking is right for their company. The webinar, sponsored by Prudential, features Milliman consultant Stuart Silverman discussing a three-step approach that can help chief financial officers make an informed de-risking decision for their company.

Here is an excerpt from his presentation:

We’ve been advocating a stepwise approach to decision making, and the first step is that the corporation needs to understand all their risks, not just the asset risk but also understanding the liability-related risk.

The second step, once we understand all these risks is helping the corporation understand what their risk tolerance is. Some corporations might have a wide risk tolerance and some may have a very limited risk tolerance.

…After we know what the risks are and what their tolerance is, we want to find the most cost-effective solution to bring their risk into a tolerable range.

In his article “The risks of de-risking pension plans,” Zorast Wadia also provides perspective concerning the risks associated with de-risking a defined benefit plan:

…While every plan sponsor and advisor should be thinking about pension risk management, it is important to exercise care in the strategy that is chosen and in the timing of implementation. Every pension de-risking strategy has its own pluses and minuses and most have an embedded cost associated with them, whether implicit or explicit. Risk management strategies must be customized for organizations depending on their risk tolerance and cash flow requirements. Once a strategy is selected, periodic refinement should also be considered. It’s not a one-size-fits-all approach. Before proceeding down a particular direction, plan sponsors must equally be made aware of both the risk reduction opportunities and the risks of de-risking.

If you are interested in learning more about pension risk management considerations, read Zorast and John Ehrhardt’s four-part PlanSponsor series.

Google+ Hangout: Pension Funding Index, July 2014

July 15th, 2014 No comments

The funded status of the 100 largest corporate defined benefit pension plans increased by $14 billion during June as measured by the Milliman 100 Pension Funding Index (PFI). The deficit improved from $266 billion to $252 billion at the end of June, which is primarily due to investment gains. As of June 30, the funded ratio rose from 84.5% to 85.3%. However, the funded ratio is still down for the year from 88.3% as of December 31, 2013. June was the first month in 2014 when discount rates increased, but only by 0.02%. Fortunately, the strong year-to-date asset performance has mitigated deeper funded status erosion.

Index co-author Zorast Wadia discusses the results on Milliman’s monthly PFI Google+ Hangout with Jeremy Engdahl-Johnson.

Corporate pension funded status improves by $14 billion in June

July 10th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In June, these plans experienced a $3 billion decrease in pension liabilities and an $11 billion increase in asset value, resulting in a $14 billion decrease in the pension funded status deficit.

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If you want to understand why pension funded status is down this year, consider the fact that June was the first month in 2014 with rising interest rates—and it’s not like we saw a massive swing. Interest rates continue to be the story with these pensions.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 4.08% were maintained, funded status would improve, with the funded status deficit shrinking to $228 billion (86.7% funded ratio) by the end of 2014 and to $173 billion (89.9% funded ratio) by the end of 2015.

Google+ Hangout: Pension Funding Index, June 2014

June 18th, 2014 No comments

The funded status deficit of the 100 largest corporate defined benefit pension plans increased by $10 billion during May as measured by the Milliman 100 Pension Funding Index (PFI). The $268 billion deficit at the end of May is primarily due to a drop in the benchmark corporate bond interest rates used to value pension liabilities. Investment gains helped to partially offset the full extent of liability increases in May. During May, the funded ratio fell from 84.7% down to 84.3%.

PFI co-author Zorast Wadia discusses the index’s latest results on this Milliman Google+ Hangout.

Pension funded status deficit increases by $10 billion in May, reaches $268 billion

June 6th, 2014 No comments

Milliman today released the results of its latest Pension Funding Index (PFI), which consists of 100 of the nation’s largest defined benefit pension plans. In May, these plans experienced a $29 billion increase in pension liabilities and a $19 billion increase in asset value, resulting in a $10 billion increase in the pension funded status deficit.

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In every month of 2014 so far we have seen a decline in interest rates. These pensions have experienced a $43 billion increase in assets, but the market gains have been dwarfed by a $125 billion increase in liabilities.

Looking forward, if the Milliman 100 pension plans were to achieve the expected 7.4% median asset return for their pension portfolios, and if the current discount rate of 4.06% were maintained, funded status would improve, with the funded status deficit shrinking to $241 billion (86.0% funded ratio) by the end of 2014 and to $187 billion (89.2% funded ratio) by the end of 2015.

Considerations for de-risking defined benefit plans

May 23rd, 2014 No comments

PlanSponsor has published a four-part series of articles authored by Milliman’s Zorast Wadia and John Ehrhardt. The series focuses on pension risk as well as measures that employers should consider in de-risking their corporate defined benefit (DB) plans.

De-risking corporate defined benefit pension plans
The first article provides an overview of the corporate DB landscape since Milliman’s inaugural Pension Funding Study in 2000. The article also highlights a three-step process for plan sponsors pondering a de-risking strategy.

Major risks facing DB plans today
Employers should understand their current pension risks before implementing a de-risking strategy. This article details several risks sponsors must deal with.

Managing and mitigating DB plan risk
The final two articles address a de-risking framework referred to as “the three Ms”: managing, mitigating, and moving risk. This article offers perspective on the first two.

Moving DB risk, and the risks of de-risking
Zorast and John discuss the last of the three Ms, moving risk, in this article. They also pose questions that can help sponsors understand the risks associated with pension de-risking.