Key considerations from PBGC multiemployer report

The Pension Benefit Guaranty Corporation (PBGC) recently released its projections report for fiscal year 2018. The report provides a review of the financial condition of the agency’s Multiemployer Insurance Program. Milliman’s latest Multiemployer Alert provide some key takeaways from the PBGC report.

Milliman FRM Insight: July 2019 Market Commentary

Global equities diverged in July amidst low equity market volatility. U.S. stocks continued to rally heading into July’s highly anticipated FOMC meeting. Domestic equity returns were strong out of the gate and remained in positive territory throughout the month. In the U.S., large, mid, and small-cap stocks all finished the month higher, while results across sectors were mixed. Across the major market segments, volatility was lower in July than it was in June and well below its five-year average. The price of oil fell for the third straight month as prospects of limited demand were met with growing supply.

Milliman’s Joe Becker offers more perspective in this month’s market commentary. Download the full commentary at MRIC.com.

Retirement expectations for Millennials

Millennials became the largest represented generation in the U.S. labor force in 2016 and now stand at about 35% of the workforce. Yet due to issues like unstable work, debt, and coming of age during the global financial crisis of 2007-2010, concern about the retirement savings of Millennials abounds.

Many statistics show that this generation’s retirement risks may not be so different from older generations. In fact, many complexities surround the financial wants and needs of Millennials. Employers may benefit from learning more about this generation’s changing relationship with retirement planning.

This article by Milliman’s Casey Baldwin, Craig Glyde, and Sarah Murray explains what Millennials want and expect from retirement and actions employers can take that may benefit this group.

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.