Milliman strengthens hedging and overlay solutions with MatchingLink software

Milliman is pleased to announce that Milliman has chosen MatchingLink software to enhance its hedging & overlay solutions. With technology playing an increasingly critical role in every part of the investment cycle, Milliman recognizes the need to accelerate the development of digital solutions to ensure competitive hedging solutions offerings to its clients.

The Milliman-MatchingLink collaboration brings together deep skills in both business and technology to support Milliman’s clients and create more value. ‘With MatchingLink’s next-gen tech solutions we can add significant value to our hedging and overlay solutions and drive better results for our (pension fund) clients,’ says Rajish Sagoenie, Principal & Managing Director for Milliman, The Netherlands.

The seamless integration of MatchingLink software within the Milliman MG-hedge platform, combined with a robust and flexible system architecture, has convinced us that by using MatchingLink we can optimally serve our customers in the Netherlands and Europe. ‘The Milliman-MatchingLink collaboration offers our (pension fund) clients state-of-the-art solutions to manage financial risks now and, in the future,’ says Marcel Kruse, Director Pension & Investment Risk for Milliman in the Netherlands.

MatchingLink’s technology platform operates as a flexible layer, communicating with existing systems. The platform combines a unique data gathering solution with a calculation engine, analysis and reporting, a flexible workflow solution and artificial intelligence. The platform is both compliant and auditable by design. ‘With our software Milliman can unlock the full potential of the most advanced technology and increase the quality of their business on a daily basis,’ says Eric Pieper, MatchingLink’s CEO.

What is a lump-sum conversion?

Defined benefit (DB) pension plans commonly distribute benefits as a monthly payment to an individual from the time of retirement until the individual’s death. This form of payment is called a single life annuity. Participants in DB plans often can choose from multiple types of annuities at retirement, but each of these options result in monthly payments. In some circumstances, benefits are distributed as a single payment rather than in monthly payments—this is known as a lump-sum distribution. This form of payment is generally permitted from plans when the “value” of the annuity is less than $5,000 (an IRS limit) or at higher values if the plan provides for this option.

How do you determine the “value” of an annuity in which future payments are promised for an individual’s lifetime? This determination requires the skills of an actuary and is called a lump-sum conversion. The lump sum value of an annuity may also be called the actuarial present value of the annuity.

In this article, Milliman’s Corey Swarner discusses how actuaries make these conversions by introducing the concepts of present value and expected value.

Changing a pension formula for success

Over the last five years, Milliman has worked closely with a pension administration client to transition its 30,000-participant defined benefit plan to a novel solution that continued to offer ongoing benefit accruals to participants, while maintaining cost-efficiency and contribution stability.

The plan, established in 1987, offers a cash balance formula as its primary benefit. When the client chose Milliman, it wanted to modify the cash balance formula to achieve both plan health and cost-efficiency. During a subsequent consulting session, it was determined that the plan’s goals could be better met by moving to a variable annuity benefit formula.

In this study, Tim Bernazza and Rebecca Connell discuss the administrative effects of changing to a variable annuity formula for this pension administration client.

Corporate pension asset values drop in September for the first time in six months, funded ratio dips to 84.5%

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.

In September, corporate pensions experienced an investment loss of -0.74% – a $17 billion decline in asset values – marking the first time in six months that returns have not been above-average. At the same time, the monthly discount rate climbed slightly, from 2.54% at the end of August to 2.57% as of September 30, lowering pension liabilities by $9 billion for the month. As a result, the Milliman 100 PFI funded status declined by $8 billion during September, with the funded ratio dropping slightly from 85.0% to 84.5%.

This was a dizzying few months for corporate pensions, with discount rates hitting historic lows while investment returns had equally noteworthy gains. However, the result was a solid third quarter for the Milliman 100 plans, with the funded ratio improving from 83.5% at the end of June to 84.5% as of September 30.

Looking forward, under an optimistic forecast with rising interest rates (reaching 2.72% by the end of 2020 and 3.32% by the end of 2021) and asset gains (10.5% annual returns), the funded ratio would climb to 88% by the end of 2020 and 103% by the end of 2021.  Under a pessimistic forecast (2.42% discount rate by the end of 2020 and 1.82% by the end of 2021 and 2.5% annual returns), the funded ratio would decline to 83% by the end of 2020 and 76% by the end of 2021.

To view the complete Pension Funding Index, click here. To see the 2020 Milliman Pension Funding Study, click here.

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

Overview of the SECURE Act’s interim final rule

The Department of Labor’s Employee Benefits Security Administration has published an interim final rule (IFR) describing calculation methodology and model language to “obtain relief from liability” in the presentation of “Lifetime Income Illustrations” applicable to ERISA-covered defined contribution (individual account) plans, the intent of which is likely a regulatory safe harbor.

The IFR includes several assumptions that plan administrators and providers of lifetime income models and illustrations can use to adhere to the lifetime income disclosure requirement of Section 203 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 at least once every 12 months. This Milliman Benefits Alert provides more perspective.

Dear Actuary explores the benefits of an experience study as a financial plan management tool

With financial management being a top priority of retirement plan boards, an experience study can be a vital tool for the successful financial plan management of a pension. Here are two important questions plan sponsors should consider: What is the purpose of an experience study? And what benefits can it provide my pension plan? Milliman’s latest Dear Actuary column provides some perspective.