Category Archives: Pensions

Pension studies present a global picture of defined benefit plans

Milliman’s MBW International counterpart, Barnett Waddingham, recently published a report focusing on the corporate pension funding status for plans in the United Kingdom. The report is comparable to the Milliman Pension Funding Study, which covers the 100 largest U.S. corporate plan sponsors. In this article, Milliman’s Zorast Wadia and Barnett Waddingham’s Andrew Vaughan and Lewys Curteis explore the similarities of the two reports.

Co-sourcing versus outsourcing pension plan administration

Pension plan administration can be managed through a variety of arrangements. These arrangements include insourced, where a plan sponsor performs the entire administration internally; co-sourced, where the plan sponsor contracts with an outside vendor to have a portion of the plan administration done externally; and outsourced, where the outside vendor performs the entire administration.

As insourcing has become less common, plan sponsors are turning to outside vendors to co-source and outsource the administration. Both arrangements have advantages and disadvantages. Co-sourcing combines the positive elements of both insourcing and outsourcing, allowing the plan sponsor to maintain control of the administration while using the resources and expertise of an outsourced vendor. Outsourcing removes the burden and complexity of plan administration entirely.

Which is better? When do the advantages of outsourcing outweigh those of co-sourcing? What can businesses do to ensure that pension plan administration is accurate, efficient, and cost-effective? In this article, Milliman’s Julie Sinke explores these questions.

Pension and OPEB underfunded status after Michigan PA 202

The Protecting Local Government Retirement and Benefits Act (the Act) addressed underfunding issues associated with pension plans and retiree medical plans in Michigan that are sponsored by local governments. Prescribed actuarial assumptions used to make calculations have not yet been set. This paper by Milliman consultants Tim Herman and Jack Chmielewski aims to help stakeholders of Michigan’s many local government pension and other post-employment benefit programs develop informed expectations around the range of outcomes that could result from the state treasurer’s decisions about actuarial assumptions as they relate to the Act.

Plan-specific substitute mortality tables

In October 2017, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) released final regulations prescribing new mortality tables that apply to single-employer defined benefit pension plans for the purpose of calculating the actuarial liabilities for minimum funding requirements, benefit restrictions, and Pension Benefit Guaranty Corporation (PBGC) variable-rate premiums. As with the prior regulations, the new regulations give plan sponsors the option to use either the standard mortality tables developed by the IRS, or to develop plan-specific mortality tables.

The new regulations significantly revised the rules regarding plan-specific substitute mortality tables. Under the prior rules, a plan was required to have fully credible mortality experience in order to use substitute mortality tables. The new rules allow for the use of substitute mortality tables for plans with smaller populations that do not have fully credible mortality experience. As a result, Treasury and the IRS expect that significantly more plan sponsors will request approval to use substitute mortality tables.

Using substitute mortality tables should theoretically improve the fit between expected and actual mortality rates, thereby producing smaller experience gains and losses over time. In addition, for plans employing a workforce that exhibits heavier mortality than the standard tables, using substitute mortality tables could potentially lower both minimum required contributions and PBGC variable-rate premiums.

For these reasons, plan sponsors may want to consider the use of substitute mortality tables. A written request must be submitted by the plan sponsor at least seven months before the first day of the first plan year for which the substitute mortality tables are to apply.

Note that the regulations do not allow plan sponsors to use plan-specific tables for determining minimum lump-sum values; standard IRS tables continue to be used for this purpose.

Outsourcing enhances a small pension plan’s administration

When a small pension plan disaffiliated from its larger pension group, it lost access to the retirement system infrastructure that helped administer its plan. In this article, employee benefits analyst Julie Sinke explains the sponsor’s decision to fully outsource its plan administration to Milliman and how the firm provided a more efficient and streamlined solution.

Change in amortization methodology reduces pension expense

Ninety percent of one pension plan’s expense was tied to its loss amortization component. The fact that this single component of pension expense influenced the results so heavily caused Milliman consultants to look more deeply into the loss amortization method in order to address the plan sponsor’s concerns. In this article, Michael Mikhitarian explains how the firm worked with the sponsor and its auditor to change the plan’s amortization methodology to reduce pension expense.