Compensation trends to recruit and retain employee talent

With unemployment in the United States at a near 50-year low, employers need to find novel ways to attract new employees and keep their workforce engaged. Creating competitive compensation packages that ensure employee satisfaction must reach beyond pay to more comprehensive views of what workers want from their companies and jobs.

What are seven trends that are key for employers to consider in the current labor market?

7. Engagement

Research has consistently shown that keeping employees engaged is the key to running a successful business.

6. Corporate social responsibility

Workers want to work for a company that supports their values.

5. Pay equity

Perceptions of pay equity erode employee engagement and trust in management.

4. Minimum wage

In recent years, the effective minimum wage in some areas in the U.S. has outpaced inflation and grown even faster than typical wages.

3. Hot jobs

Salaries for hot jobs are moving at a more rapid pace than the rest of the market.

2. Employee financial wellness/well-being

Employee financial wellness and well-being initiatives stand to benefit a large number of employees.

1. Total rewards

A company’s ability to attract and retain the best employees depends to a large extent on other pay components in the total rewards package.

To read more about these seven trends in compensation, read this Milliman Insight article by Lauren Busey and Larry Daniels.

Retirement plan considerations related to expanded determination letter program

Earlier this year, the Internal Revenue Service (IRS) released Revenue Procedure (Rev Proc) 2019-20 announcing an expansion of the determination letter program for certain retirement plans. The determination letter program, previously restricted in 2017 (Rev Proc 2016-37), will be expanded on September 1, 2019. This action opens the program up to statutory hybrid plans to apply during a 12-month window, and also allows certain merged plans indefinitely. Milliman’s Carrie Vaughn offers more perspective in this Multiemployer Review article.

July’s corporate pension funding deficit largest seen in 2019 as discount rates drop

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In July, the Milliman 100 PFI deficit hit a year-to-date high, swelling from $205 billion to $216 billion, the result of a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The monthly discount rate during July dropped by eight basis points, to 3.37%, making it the third lowest discount rate in the 19-year history of the Milliman 100 Pension Funding Index, with discount rates lower only in July and August of 2016 .

July delivered a one-two punch to corporate pensions, with the Fed’s quarter-point interest rate cut and drop in the monthly discount rate. Investment returns overall this year have helped buoy funding – but with the market volatility seen over the past few days, August may turn out to be more ‘bust’ than ‘boom’ for these pensions.

As of July 31, the funded ratio of the Milliman 100 PFI fell from 88.4% to 87.9%, and the funded status of these pensions decreased by $11 billion. Over the last 12 months (August 2018 – July 2019), the cumulative asset return for these pensions has been 6.42%, while discount rates experienced a 74 basis point drop, moving from 4.11% to 3.37% a year later.  Looking forward, under an optimistic forecast with rising interest rates (reaching 3.62% by the end of 2019 and 4.22% by the end of 2020) and asset gains (10.6% annual returns), the funded ratio would climb to 94% by the end of 2019 and 109% by the end of 2020.  Under a pessimistic forecast (3.12% discount rate at the end of 2019 and 2.52% by the end of 2020 and 2.6% annual returns), the funded ratio would decline to 85% by the end of 2019 and 78% by the end of 2020.

To view the complete Pension Funding Index, click here. To see the 2019 Milliman Pension Funding Study, click here.

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

Regulatory roundup

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

PBGC modifying rule on payment of premiums

The Pension Benefit Guaranty Corporation (PBGC) issued a notice announcing it is modifying the collection of information under its regulation on “Payment of Premiums” and intends to request that the Office of Management and Budget (OMB) approve the revised collection.

To learn more, click here.

Final rule on association retirement plans and multiple employer plans issued

The Department of Labor (DoL) released a final rule that expands access to affordable quality retirement saving options by clarifying the circumstances under which an employer group, association, professional employer organization (PEO) may sponsor a multiple employer workplace retirement plan, as opposed to providing an arrangement that constitutes multiple separate retirement plans.

The final regulation does this by clarifying that employer groups or associations and PEOs can, when satisfying certain criteria, constitute “employers” within the meaning of the Employee Retirement Income Security Act (ERISA) for purposes of establishing or maintaining an individual account “employee pension benefit plan” within the meaning of ERISA. As an “employer,” a group, association, or PEO can sponsor a defined contribution retirement plan for its members (collectively referred to as “multiple employer plans” or “MEPs” unless otherwise specified).

To read the entire final rule, click here.

Proposed rule on open multiple employer plans issued

The DoL released a proposed rule requesting information regarding the definition of “employer” in section 3(5) of ERISA. The document mainly seeks comments on whether to amend regulations to facilitate the sponsorship of “open MEPs” by persons acting indirectly in the interests of unrelated employers whose employees would receive benefits under such arrangements. The term “open MEP” refers to a single defined contribution retirement plan that covers employees of multiple unrelated employers.

To read the entire proposed rule, click here.

Managing fiduciary advice and annuity usage for better retirement solutions

Adding protected lifetime income to an investment portfolio can improve the retirement security of many Americans. Providing fiduciary advisers with holistic tools and products can help them blend annuity- and investment-based income approaches more effectively. In this article, Milliman’s Michelle Richter explores the opportunities and challenges advisers face as the financial services industry moves toward supporting a fiduciary standard of advice in the annuity space.

Public pension funded ratio climbs to 72.2% in Q2 2019 with aggregate asset gains of 2.66%

Milliman today released the second quarter 2019 results of its Public Pension Funding Index (PPFI), which consists of the nation’s 100 largest public defined benefit pension plans. In Q2 2019, these plans experienced a $50 billion jump in funding, largely due to solid investment gains of 2.66% in aggregate. Estimated returns for these plans in Q2 ranged from a low of 1.33% to a high of 4.39%. When combined with the stellar gains made in Q1, PPFI plans have now mostly recovered the investment losses they suffered in the final quarter of 2018. The PPFI’s overall funded ratio increased over the last quarter, from 71.0% at the end of March to 72.2% as of June 30, 2019.

Public pension funded ratios are basically back where they were a year ago but over the past 12 months annualized returns, at 6.0%, fell short of long-term expectations. It’s good to remember that investment horizons for these plans are measured in decades, so short-term fluctuations are something plan sponsors have to live with to reap long-term rewards.

As of June 30, 2019, the PPFI deficit stands at $1.458 trillion compared to $1.508 trillion at the end of March. The total pension liability (TPL) continues to grow, and stood at an estimated $5.247 trillion at the end of Q2, up from $5.205 trillion at the end of Q1 2019. A deeper analysis around funding, investment assumptions, and discount rates will be available later this summer as part of Milliman’s annual Public Pension Funding Study.

To view the Milliman 100 Public Pension Funding Index, click here.

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