New ASOP 6 implications for OPEB reporting

A revised version of Actuarial Standard of Practice No. 6 (ASOP 6) is effective for any plan with a measurement date on or after March 31, 2015. The new ASOP 6 requires that actuaries value the “true cost” of providing health benefits. Milliman actuary Markella Roma provides some perspective in this PERiScope article.

Regulatory roundup

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

PBGC releases final rule on merger and transfers between multiemployer plans
The Pension Benefit Guaranty Corporation (PBGC) issued a final rule amending its regulation on mergers and transfers between multiemployer plans to implement procedures and information requirements for a request for a facilitated merger. This final rule also reorganizes and updates provisions in the existing regulation.

To read the final rule, click here.

Milliman Market Monitor London, August 2018

European markets declined in August, reflecting investor concerns regarding trade pressure between the U.S. and other countries. In this month’s London market monitor, Milliman’s Peter Lin and Neil Dissanayake highlight key observations including:

• Both the Euro Stoxx 50 and FTSE 100 indices lost more than 3% in total returns during the month, turning negative year-to-date.
• The British pound continued its downward slide against other major currencies in August.
• CPI price inflation rose from 2.4% to 2.5% in July, but RPI price inflation declined by 20 basis points to 3.2% in the same month.
• Realised volatility of equity indices increased in mid-August stemming from trade disputes and emerging market uncertainty.
• The volatility risk premium increased for all indices in August, with the S&P 500 index ending the month at around 3.5%.

To learn more, download the full commentary here.

What should sponsors consider when implementing a Taft-Hartley defined contribution loan provision?

Like other types of defined contribution plans, Taft-Hartley Defined Contribution (DC) participant loans are an optional plan provision that a plan sponsor can choose to offer participants. Plan sponsors should ensure that participant loan provisions in a Taft-Hartley DC retirement plan be thoroughly vetted and in compliance. Milliman’s John Donohue and Jinnie Olson provide more perspective in this article.

Corporate pension funding drops by $3 billion in August

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In August, these pensions experienced a $3 billion drop in funded status due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The monthly discount rate fell six basis points from 4.11% in July to 4.05% as of August 31. The projected benefit obligation (PBO) for these plans increased by $12 billion during this time period, while the market value of assets rose by $9 billion thanks to August’s strong investment gains of 0.85%. The funding ratio for the Milliman 100 PFI dipped slightly during the month from 93.5% to 93.3%.

The last time we saw the PFI funding ratio remain over 90% for eight months in a row was during 2008– directly preceding the financial market collapse. Investment gains continue to buoy corporate pensions despite the continued low discount rate environment.

Looking forward, under an optimistic forecast with rising interest rates (reaching 4.25% by the end of 2018 and 4.85% by the end of 2019) and asset gains (10.8% annual returns), the funded ratio would climb to 98% by the end of 2018 and 114% by the end of 2019. Under a pessimistic forecast (3.85% discount rate at the end of 2018 and 3.25% by the end of 2019 and 2.8% annual returns), the funded ratio would decline to 91% by the end of 2018 and 84% by the end of 2019.

To view the complete Pension Funding Index, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.

Milliman FRM Market Commentary: August 2018

In August, U.S. stocks extended its lead over non-U.S. stocks by the widest margin year-to-date. In this month’s FRM Market Commentary, Milliman’s Joe Becker addresses the following:

  • Down six out of the last seven months, emerging market (EM) stocks extended their slide in August, falling another 2.6%. They now trail US stocks by 16.4% YTD, much of which is attributable to a stronger dollar.
  • The S&P 500 notched its fifth consecutive positive monthly return and its 27th out of the last 30.
  • From its March 9, 2009 financial crisis low through August, the S&P 500 has:
    • Climbed 329%
    • Increased its nominal 12-month dividend by 90%
    • Generated a total return (with dividend reinvestment) of 423%
    • Run for 2,389 days without a 20% drawdown (although came close in Oct. 2011)
  • Small-cap stocks have moved higher six straight months generating a 20% cumulative return.
  • US equity market volatility remained exceptionally low in August while EM volatility broke above its five-year average.
  • The correlation of the S&P 500 to global ex-US equities increased again in August, as did its correlation to the U.S. aggregate bond market, amidst falling interest rates.

To learn more, download the full commentary at MRIC.com.