Milliman launches monthly Pension Buyout Index to track the estimated cost of retiree pension risk transfer transactions

Milliman today announced the launch of the new Milliman Pension Buyout Index (MPBI). As the Pension Risk Transfer (PRT) market continues to grow, it has become increasingly important to monitor the annuity market for plan sponsors that are considering transferring retiree pension obligations to an insurer. The MPBI uses the FTSE Above Median AA Curve, along with annuity purchase composite interest rates from insurers, to estimate the average cost of a PRT annuity de-risking strategy.

During January, the estimated cost to transfer retiree pension risk to an insurer remained flat for the month, with costs ticking up only one-tenth of a percentage point, from 104.2% of a plan’s total liabilities to 104.3% of those liabilities. This means the estimated retiree PRT cost for the month is 4.3% more than those plans’ retiree accumulated benefit obligation (ABO). The lack of MPBI movement in January is the result of both discount rates and annuity purchase rates decreasing in parallel by 35 basis points each, which in turn kept the relative cost of annuities stable.

With an increase in activity in the pension risk transfer market in recent years, understanding the correlation between annuity pricing and pension liability is essential. Tracking annuity pricing rates will enable plan sponsors to approach a de-risking strategy armed with more information on cost trends in the market.

Plan sponsors should note that the MPBI is an average cost estimate, and individual plan annuity buyouts can vary based on plan size, complexity, and competitive landscape. Furthermore, specific characteristics in plan design or participant population can affect the cost of a pension risk transfer.

To view the complete Milliman Pension Buyout Index, click here.

Milliman adds IBEW Local 405 as a retirement services client

Milliman has announced it has added the IBEW Local 405 Deferred Savings Plan as a defined contribution client. The plan includes 900 participants and $184 million in assets.

“We chose Milliman based on recommendations from other unions as well as our consultants,“ says Bill Hanes, Business Manager and Trustee. “Milliman’s reputation among labor unions and our peers in the industry is very good.”

Milliman will provide recordkeeping, communications, and ERISA consulting services for the plan.

We are excited to work with the IBEW Local 405. The trustees valued our independence and transparency, but it was also important that our viewpoints aligned regarding how to best serve the needs of their members. Our philosophies were consistent.

For information on Milliman’s employee benefit services, click here.

Multiemployer pension plans’ aggregate funding percentage reaches 85% in 2019, matching pre-financial crisis levels

Milliman today released the results of its latest Multiemployer Pension Funding Study (MPFS), which analyzes the funded status of all multiemployer defined benefit pension plans in the United States.

As of December 31, 2019, the aggregate funded percentage of multiemployer plans rose to 85%, up from 74% a year prior, due primarily to double-digit asset returns that exceeded expectations for the year. Overall, multiemployer plan funding levels are now back to where they were in 2007, before the financial crisis, with a greater percentage of plans over 100% funded compared with 12 years ago. However, the picture is much less rosy for troubled multiemployer pensions, with 104 plans now funded below 50%, compared with just 28 in 2007.

While about 130 plans continue on a path toward insolvency, the majority of non-critical plans have improved since 2007 and are at higher funding levels today. In addition to investment performance, many plans are seeing funding levels increase due to benefit and/or contribution adjustments made during the past decade.

Milliman’s most recent MPFS also explores the latest trends in the average discount rate assumption for all plans as well as what may lie ahead for multiemployer plans given potential legislation and unknown investment returns.

To view the complete study, click here.

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

Retirement plan changes could make sponsors feel less SECURE

Retirement plan sponsors and their third-party administrator (TPA) business partners need to understand the implications of two SECURE Act provisions involving complex changes to human resources (HR) administration systems and savings plan calculation engines. One is a mandatory change concerning long-time part-time employees who may qualify to participate in an employer’s retirement plan if they meet the requisite hours worked for three consecutive years. The second is a voluntary change related to qualified birth or adoption distributions.

In this article, Milliman consultants Charles Clark and Deborah Lachner explain some of the complexities resulting from these provisions and highlight actions plan sponsors can take to avoid being caught off guard.

Annuity industry to SECURE retirement plan opportunities

The SECURE Act has now made it significantly more attractive and less restrictive for employers to offer annuities within their defined contribution (DC) retirement plans. This provision presents a growth opportunity for the annuity industry. In this article, Milliman actuary Ian Laverty highlights those opportunities and provides an overview of the fiduciary and portability changes created by the SECURE Act.

January’s discount rate hits 20-year record low, dropping corporate pension funding significantly

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In January, steep discount rate declines caused the PFI funding deficit to swell by $73 billion; the funded ratio for these plans subsequently dropped from 89.0% to 85.7% for the month.

January’s poor funding performance is the result of a 35-basis-point drop in the monthly discount rate, from 3.20% in December to 2.85%, setting the record for the lowest rate ever recorded in the 20-year history of the PFI, and only the second time the PFI’s monthly discount rate has dropped below 3.00%. Pension liabilities increased by $87 billion in January as a result, with the losses only partially offset by strong investment gains of $14 billion.

Corporate pensions are now starting off the year trying to dig their way out of a hole created by January’s steep discount rate drop. While much of the funding improvement from the fourth quarter of 2019 has been wiped out, there’s a silver lining in the strong investment returns experienced this month. Let’s hope that continues, with discount rates rising above 3% again.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.40% by the end of 2020 and 4.00% by the end of 2021) and asset gains (10.6% annual returns), the funded ratio would climb to 99% by the end of 2020 and 116% by the end of 2021.  Under a pessimistic forecast (2.30% discount rate by the end of 2020 and 1.70% by the end of 2021 and 2.6% annual returns), the funded ratio would decline to 80% by the end of 2020 and 73% by the end of 2021.

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.