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Posts Tagged ‘Pensions’

Risk sharing within pension plans in the Netherlands

April 28th, 2015 No comments

Sagoenie-RajishDutch pension system
Like many other European countries, the Netherlands operates a three-pillar pension system. This consists of:

1. A government-provided pension.
2. An employer-provided pension.
3. Personal pensions purchased through individual savings.

The first pillar, government pension, provides a basic income to retired people in the Netherlands. It is financed through taxes and is based on a pay-as-you-go system. The pension provided is linked to the country’s minimum wage. An amount of 2% of the state pension benefit is accrued for each year that an individual has lived or worked in the country until the age of 67, with a maximum period of 50 years taken into account. Depending on the increase in nationwide longevity, the age of 67 will increase.

The second pillar consists of occupational pension schemes. Companies offering their employees a pension plan are obliged to administer these plans externally via a pension fund or an insurance company. Funding for these schemes is provided through employer and member contributions and is based on capitalization. A majority of employers used to bear all the risk for these schemes but, in line with globally changing attitudes, there has been a move toward risk-sharing types of schemes. This pillar is discussed in further detail below.

The third pillar consists of annuities and pensions bought from individual savings. It is the main source of postretirement income for self-employed individuals and individuals working for organizations that do not provide a pension. To encourage people to make use of this pillar, tax incentives (within limits) are provided by the government.

In 2014 and 2015 the tax incentives in the second and third pillars were further limited. The annual salary on which the pension is based is limited to EUR 100,000.

Read more…

PBGC requires plan sponsors to report risk transfer activities

March 26th, 2015 No comments

Single-employer and multiemployer defined benefit plan sponsors that undertake “de-risking” activities must now disclose information about annuity purchases or lump-sum window offerings when they pay their premiums to the Pension Benefit Guaranty Corporation (PBGC), beginning with the filings for the 2015 plan year. For sponsors of plans with calendar-year plans, the first filing with the de-risking disclosures is due October 15, 2015. The PBGC’s rationale for this new requirement is that there currently is available no comprehensive, detailed, and reliable source for information on risk transfer activities, which can result in substantially reduced premium payments to the agency. This Client Action Bulletin provides more perspective.

Multiemployer Review: Multiemployer Pension Reform Act of 2014

February 4th, 2015 No comments

This Multiemployer Review summarizes provisions of the Multiemployer Pension Reform Act (MEPRA) that were included in the Consolidated and Further Continuing Appropriations Act of 2015 (P.L.113-235). The MEPRA provisions that apply to all multiemployer plans are discussed first, followed by provisions that impact plans depending on their Pension Protection Act (PPA) zone status (green zone or endangered status, endangered and critical status, and critical status).

Defined benefit plan investments: Planning for the future now

January 22nd, 2015 No comments

Marzinsky-JeffDuring December 2014, U.S. equity markets peaked at all-time highs—over 18,000 for the Dow Jones Industrial Average and 2,090 for the S&P 500 Index. Then, in January, equity markets became more volatile and both indexes pulled back dramatically, as international economic uncertainty rose and oil prices fell. Some thought interest rates couldn’t go any lower during 2014 with the U.S. Federal Open Market Committee (FOMC) hinting at an upward adjustment. But interest rates on the longer end of the maturity spectrum dropped during 2014, which most likely had a detrimental effect on defined benefit (DB) pension plan liabilities.

Now, more than ever, plan sponsors should be reviewing their DB plan investments as we react to these market movements, which are critical in the asset allocation process. For more perspective on the shifting landscape, see my paper “Developing pension plan investment strategy: A variety of considerations,” published last year to help DB plan sponsors understand the range of considerations and how they interact in the development of a pension plan investment strategy.

Top Milliman blog posts in 2014

December 15th, 2014 No comments

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

Read more…

HATFA requires immediate action on 2013 defined benefit plan valuations

August 6th, 2014 No comments

President Obama is expected to sign into law the recently passed Highway and Transportation Funding Act (HATFA). As enacted, single-employer and multiemployer defined benefit pension plan sponsors will see temporary reductions in minimum required contributions and may be able to avoid benefit restrictions. Because the new law as written applies retroactively to the 2013 plan year (absent an election to opt out), affected plan sponsors will have to make decisions soon, ideally equipped with yet-to-be published technical guidance from the Internal Revenue Service (IRS).

At a minimum, plan sponsors will need to quickly instruct their plan actuaries to redo the 2013 actuarial valuation calculations or formally elect to opt out.

In general, the new law modifies the 2012 Moving Ahead for Progress in the 21st Century (MAP-21) Act interest-rate corridors used by affected sponsors to determine their minimum funding liabilities. HATFA maintains a narrower corridor than MAP-21 for the 2013 to 2017 plan years and then phases in a wider corridor over four years beginning in 2018. A plan sponsor may elect, in writing, to retain its use of the MAP-21 interest-rate corridor only for the 2013 plan year; starting in 2014, use of the HATFA corridors by all plan sponsors is required.

Plan sponsors face a number of time-sensitive decisions and actions as a result of HATFA’s enactment. For example, absent an election to opt out, the narrower 2013 plan year interest-rate corridor will require a revised actuarial valuation. Plan sponsors will also have to revise their disclosures to reflect the HATFA changes in the next annual funding notices. As the HATFA change temporarily reduces the amount a sponsor must contribute and the tax deductions for those contributions, the employers’ taxable income could increase. And longer term, required pension plan contributions should increase after the temporary “smoothing” provision expires, depending on corporate bond interest rates and other factors at that time.

The HATFA provision does not affect multiemployer defined benefit pension plans nor Pension Benefit Guaranty Corporation (PBGC) premiums. The pension-related provisions in HATFA also include changes for certain plan sponsors in bankruptcy, and companies subject to the rules of the Cost Accounting Standards Board (CASB) will have to adjust their CASB recovery calculations. Cooperative/small employer charity plans will need to recalculate their plans’ full funding limits.

For additional information about HATFA’s pension provisions and assistance with exploring the short- and long-term pension funding options, please contact your Milliman consultant.

Top 10 Milliman blogs items for 2013

December 19th, 2013 No comments

Milliman publishes blog content addressing complex issues with broad social importance. Our actuaries and consultants offer their perspective on healthcare, retirement plans, regulatory compliance, and more. The list below highlights Milliman’s top 10 blogs in 2013 based on total pageviews:

10. In their blog “Five keys to writing a successful qualified health plan application,” Maureen Tressel Lewis and Bonnie Benson highlight several best practices insurers should consider when submitting a qualified health plan application to the Health Insurance Marketplace.

9. “Understanding ACA’s subsidies and their effect on premiums” offers perspective into the relationship between healthcare premiums and federal subsidies for low-income individuals.

8. Funding for future Consumer Operated and Oriented Plans(CO-OPs) was eliminated as a result of the fiscal deal that was signed in December 2012. Tom Snook takes a look at how the deal affects CO-OPs in his blog “CO-OPs: An endangered species?

7. Robert Schmidt discusses why the methodology used to determine COBRA premium rates is essential in his blog “The growing importance of COBRA rate methodologies.”

6. A second blog by Maureen Tressel Lewis and Mary Schlaphoff entitled “Five critical success factors for participation in exchange markets” highlights tactics that insurers offering qualified health plans may benefit from implementing.

5. “Pension plans: Key dates and deadlines for 2013” offers Milliman’s three retirement plan calendars (defined benefit, defined contribution, and multiemployer) with key administrative dates and deadlines throughout the year.

4. In her blog “Fee leveling in DC plans: Disclosure is just the beginning,” Genny Sedgwick explains how investment expenses and revenue sharing affect the fees paid by defined contribution plan participants.

3. Maureen Tressel Lewis and Mary Schlaphoff’s blog “Five common gaps for exchange readiness” describes items issuers of qualified health plans have to resolve before their plans can be sold on the Health Insurance Marketplace.

2. In the lead up to implementation of the Patient Protection and Affordable Care Act (ACA), debate often centered on how the law would affect healthcare premiums. Our “ACA premium rate reading list” offers perspective on how rates may be affected.

1. In his blog “Retiring early under ACA: An unexpected outcome for employers?,” Jeff Bradley discusses the impact that the ACA could have on both early retirees and plan sponsors.

This article was first publish at Milliman Insight.

How a website for pension employees can help employers

November 12th, 2013 No comments

Hart-KevinHaving a website for pension employees isn’t just good for the employees, it’s also good for employers. A website for pension employees can save an employer time and can help communicate retirement benefits. And in today’s world, some employees will be more comfortable doing as much as possible online.

Communicating directly with employees through a participant website can often be a time-saver. A participant website can allow employees to send emails to the employer. Certain self-service functions can also be made available on the participant website. This would include allowing employees to change their beneficiaries, or current addresses, or even begin termination/retirement processes, all online. Another self-service possibility on the participant website is allowing retirees to change their direct deposits or tax withholding information online. This is an always growing area and, as time goes on, more and more self-service functions will be made available to employees.

A website for pension employees can also save an employer time by making certain documents available there. Frequently requested documents can be made available for download, including summary plan descriptions, annual funding notices, beneficiary designation forms, frequently asked questions, and more.

Benefit calculations can be posted directly to an employee’s portion of the website. Periodic benefit statements can also be posted online and are thus always available to employees. This gives employees an opportunity to see past statements and how their pension benefit is growing. Any types of calculations can be posted on the website and only made available to targeted employees. This includes final termination or retirement paperwork that the employee must fill out.

But perhaps the biggest benefit of a website for pension employees is allowing employees to project their retirement benefits and become comfortable with their retirement incomes, using online tools to run projections at different termination and retirement dates. Employees can see their accrued benefit as well as what their benefits would be if they stayed employed with the employer up to their normal retirement dates.

The website can also estimate Social Security benefits at various beginning dates and can even include the defined contribution (DC) benefits (401[k], 403[b], etc.) offered through an employer. Enabling employees to combine all of their retirement benefits and other retirement income, as well as their spouses’ retirement income, can give employees a picture of their total retirement income. Employees can run various “what-if” scenarios to see how their retirement choices might affect future benefits. A participant website is one way to show employees the value of total retirement benefits packages.

If you are an employer who would be interested in creating or enhancing a website for your pension employees, then now might be a good time to investigate further.

School’s out for summer

June 20th, 2013 No comments

I have two kids and they just started summer vacation. Ahhh, the sweet freedom of youth. Months of swimming, fishing, bike riding, and downloading ridiculous apps.

My 12-year-old son noticed that I was still doing my usual evening prep to get everything ready for work the next morning and said, “No summer vacation for you, Dad.” I nodded. “Don’t worry,” he continued, “You’ll be laughing at me when you’re retired.”

Wow. Pension humor at age 12. He’s a chip off the old block, my son.

I only hope he’s right. But I’m sure not laughing yet. I’m 46 and, although I’m saving for retirement, I also plan to live a lot longer, which means I’ve got to work longer to save up for it. In addition, although I’ve had good health so far (and I try to hit the gym four or five times a week), there’s no guarantee that it will last.

People are living longer. On average, a 65-year-old can expect to live another 19 years, but it’s becoming more and more common to cross the century mark. People are also dying longer. Instead of dying quickly from heart attacks, we’re facing long battles with cancer or Alzheimer’s, and along the way we’re having hip replacements and knee replacements. With healthcare costs already straining company budgets, I have to believe that some of my nest egg will be paying for my medical needs. (Check out the Milliman Medical Index for some sobering data on how the average family of four spends more on medical premiums than they do on groceries.)

In the meantime, my kids will need college educations and the tuition trend is looking a lot like the healthcare trend.

It’s a good thing I love my job (Thank you Mr. Milliman!) because I’ll probably be at it for a while. And that’s really the bright side. It’s a challenging time to be in the benefits industry. The global financial crisis has really put the squeeze on a lot of pension plans and our clients need creative solutions for managing costs while staying compliant. Furthermore, I think the pendulum may be about to swing back in favor of defined benefit (DB) plans because people now realize that 401(k) plans alone can’t provide a stable, secure retirement. But the defined benefit plans of tomorrow will need less volatility and may have later retirement ages.

So, someday in the distant future, I’m sure I’ll be able to laugh at my son when I’m retired and he’s a member of the workforce, but I can wait a while and find other things to laugh about along the way.

New mortality research indicates Americans living longer than expected

February 25th, 2013 No comments

In September 2012, the Society of Actuaries (SOA) released the results of research indicating that recent U.S. mortality improvements have outpaced expectations. The “Mortality Improvement Scale BB” report was authored by the Retirement Plans Experience Committee (RPEC), a subcommittee of the SOA whose primary directive is to research mortality experience among U.S. retirement plans. The RPEC also publishes the mortality tables and mortality improvement scales that are in frequent use for actuarial valuations of pension plans in both the public and private sectors.

Currently, the RPEC’s most recently published mortality tables in the United States are the RP-2000 tables. These tables contain expected rates of mortality by age, and are mandated by the IRS for use in U.S. corporate pension valuations. The RPEC had also previously published Scale AA, a scale of mortality improvements intended for use with base mortality tables to reflect the expectation that mortality is improving over time. However, the most recent research shows that even greater actual mortality improvement has been occurring than was predicted by Scale AA.

Additionally, the RPEC research has revealed that age alone may not be the best predictor of mortality improvement; some birth groups may experience rates of improvement that differ from other birth groups, or entire populations may experience a boost in longevity that is due to medical achievements such as antibiotics, regardless of age. For reasons such as these, the RPEC believes the best predictors of mortality improvement may be tied to both age and calendar year. This would create the need for a two-dimensional table of mortality improvement rates, which some current actuarial software may not be able to utilize without modification.

To that end, the RPEC has released an interim improvement scale, known as Scale BB. Scale BB, although not itself two-dimensional, incorporates information from the fully two-dimensional rates developed by the RPEC. It also reflects the stronger improvement patterns seen in recent years. Although the impact of using Scale BB in actuarial valuations will vary by pension plan based on plan provisions, maturity, and other factors, Scale BB is expected to result in higher liabilities as it reflects increasingly lengthy lifetimes for benefit recipients. The RPEC study estimates that switching from Scale AA to Scale BB might increase liabilities between 2% and 4%, based on some sample plan analysis.

There is ongoing debate in the actuarial community as to the use of Scale BB, particularly centering around some assumptions used in the creation of that scale. The RPEC anticipates the release of final mortality tables and a final improvement scale by the end of 2013 or early 2014. Therefore, whether or not the use of Scale BB becomes widespread, increases in mortality improvement will likely be reflected within the next several years for many pension plans.

To read the entire SOA report, click here. For more information on actuarial mortality assumptions, click here.