Attempting to locate lost participants requires a diligent approach

From time to time pension plan sponsors are audited by the Internal Revenue Service (IRS) or the Department of Labor (DOL). One issue that often comes up during an audit is the process for locating lost participants or beneficiaries who are entitled to plan benefits.

Plan sponsors need to have well-defined procedures in place to perform a diligent search for lost participants. Otherwise, they could end up spending a lot of time documenting the details or defending their actions (or inactions) in an audit.

Milliman’s latest issue of DB Digest by David Benbow explains what steps the IRS or DOL expects plan sponsors to follow and document when searching for lost participants. To read the article, click here.

Milliman FRM Market Commentary: October 2018

In October, the S&P 500 posted its deepest monthly loss in seven years. In this month’s commentary, Milliman’s Joe Becker addresses the following:

• With a -6.8% return in October, the S&P 500 locked in its first calendar-month loss since March and its largest since September 2011.
• The decline wiped out nearly 3/4 of the YTD return it had earned through the end of September.
• No other segment of the equity market offered any haven; mid- and small-cap stocks were down 9.5% and 10.5%, while developed and emerging market equities fell 8.1% and 8.6%, respectively.
• EM equities are down 22.7% from their 2018 peak in January and down 15.1% YTD, erasing more than half of their 37.7% return in 2017.
• Consumer staples and utilities were the only positive sectors in October, while industrials, energy and consumer staples endured the biggest sector losses.
• The volatility of the S&P 500 in October was more than 4x what it was in September and more than 2x its five year average.
• As is often the case amidst market turmoil, the correlation of the S&P 500 with other segments of the equity market trended higher, while moving sharply lower against the US aggregate bond market, higher interest rates notwithstanding.

To learn more, download the full commentary at

Corporate pensions experience largest one-month investment loss in a decade, but year-to-date funding remains healthy

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In October, these pensions experienced a $13 billion decline in funded status resulting from a significant investment loss of 3.42%. This brings the PFI’s year-to-date investment performance to a loss of 1.99%; October 2018 marks the biggest one-month investment loss for these plans since January 2008’s 3.57% loss. From September 30 to October 31, the PFI’s asset value declined by $57 billion, while the funded ratio dropped one percentage point from 94.4% to 93.4%.

October wasn’t all bad news for corporate pensions, however. An increase in the benchmark corporate bond interest rates used to value pension liabilities helped offset the month’s investment losses. The monthly discount rate rose 22 points, from 4.18% to 4.40%, resulting in a $44 billion improvement in pension liabilities. This also marks the largest discount rate swing year-to-date.

While October was a record-setting month by all accounts, plan sponsors should continue to keep their heads up as we approach the end of Q4. Despite the month’s substantial investment loss, overall funded status for these pensions remains up by $117 billion for the year.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.50% by the end of 2018 and 5.10% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 96% by the end of 2018 and 111% by the end of 2019. Under a pessimistic forecast (4.30% discount rate at the end of 2018 and 3.70% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 92% by the end of 2018 and 86% by the end of 2019.

To view the complete Pension Funding Index, click here. To see the 2018 Milliman Pension Funding Study, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

New mortality tables create considerations for Dutch pension plans

This year, new mortality tables were published in both Germany and the Netherlands that will have different effects on pension liabilities in those countries. While new mortality rates in Germany will increase the value of pension liabilities there, in the Netherlands, new mortality rates will decrease the value of pension liabilities. In this article, Milliman’s Ernst van Bruggen provides some perspective and discusses several issues relating to the updated Dutch tables.

Regulatory roundup

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

401(k) contribution limit increases to $19,000 for 2019
The Internal Revenue Service (IRS) announced cost-of-living adjustments (COLAs) affecting dollar limitations for pension plans and other retirement-related items for tax year 2019. The IRS issued technical guidance detailing these items in Notice 2018-83.

To learn more, click here.

New report on taxpayers and 401(k) compliance published
The Treasury Inspector General for Tax Administration (TIGTA) released the report “Taxpayers Generally Comply With Annual Contribution Limits for 401(k) Plans; However, Additional Efforts Could Further Improve Compliance.” The overall objective of the audit was to determine whether IRS processes sufficiently identify and address excess contributions to 401(k) plans.

TIGTA analysis of IRS records showed that the vast majority of taxpayers are complying with tax laws designed to limit the annual amount of compensation that can be contributed to 401(k) retirement plans. Nonetheless, TIGTA identified two areas in which compliance could be improved: 1) some 401(k) plans did not prevent taxpayers from exceeding the annual limit, and 2) some taxpayers exceed annual limits when contributing to multiple 401(k) plans.

To read the entire audit, click here.

Applicable present values for 2019 pension plan years
The Pension Benefit Guaranty Corporation (PBGC) posted a table showing the applicable present values for 2019 plan years. The values apply to benefits with annuity starting dates in 2019. The 2019 table was developed using the 417(e) segment rates for August 2018 (3.10%, 4.15%, and 4.46%) for plan years beginning in 2019 and the 417(e) applicable mortality table for 2019.

To view the table, click here.

Regulatory roundup

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

DOL release proposed rule on association retirement plans and other multiemployer plans
The Department of Labor (DOL) proposed a regulation to expand access to affordable quality retirement saving options by clarifying the circumstances under which an employer group or association or a professional employer organization may sponsor a workplace retirement plan.

To read the entire proposed rule, click here.

PBGC issues maximum monthly guarantees for 2019
The Pension Benefit Guaranty Corporation (PBGC) announced that the guarantee limits for single-employer plans that fail in 2019 will be 3.46% higher than the limits that applied for 2018. A table showing the single-employer plan guarantee limits for various ages and payment forms is available on PBGC’s website. The guarantee limits for multiemployer plans are not indexed and therefore have not changed.

Reportable event reference sheet for small plans
The PBGC issued a quick checklist to help identify possible reportable events for small plans (i.e., plans with 100 or fewer participants).

To download the checklist, click here.

DOL provides compliance assistance resources to secure employee benefits
The DOL’s Employee Benefits Security Administration (EBSA) has developed compliance assistance resources to help protect employee benefits. EBSA’s goal is to help workers by restoring plan assets and securing the payment of promised benefits, and to help employee benefit officials understand the law. These tools give employee benefit plans the ability to self-correct violations, and further the goals of the DOL’s recently announced Office of Compliance Initiatives (OCI) to encourage and facilitate compliance.

For more information, click here.