Category Archives: Pensions

Potential solutions for reducing PBGC premiums

Defined benefit (DB) plan sponsors continue to seek options to reduce their Pension Benefit Guaranty Corporation (PBGC) premiums, especially the variable rate premium. Milliman actuary Bret Linton highlights the following three solutions for plan sponsors to consider in his article “The challenge: Reducing PBGC variable rate premiums.”

1. Additional contributions, credited to the prior plan year.
2. Borrowing capital at a lower interest rate than the PBGC variable rate.
3. Splitting the pension plan into two plans: one with only actives and a second with the remaining retirees and terminated vested participants.

Preparing a pension plan termination

The process of terminating a defined benefit (DB) plan is lengthy, time-consuming, and costly. An actuary, trust custodian, attorney, trustee, and investment advisor can assist with many of the duties. In this DB Digest article, Milliman’s Stephanie Sorenson discusses the multiple tasks that plan administrators must accomplish in preparation for a plan termination.

Here’s an excerpt:

Data
It is important to review and validate the participant data. Quality data is critical to the termination process. Insurer quotes will reflect the accuracy, actual or perceived, of the data provided to them.

Also the Pension Benefit Guaranty Corporation (PBGC) requires that the plan sponsor maintain the participant and plan data for six years after plan termination (the date on which PBGC Form 501 is filed). The data should be gathered during the plan termination process and remain accessible during the six-year period.

Does the data have valid identification numbers for all participants? Does the data contain valid dates of birth, hire, participation, and termination? If not, review employment records and update.

Does the data include addresses for all participants and beneficiaries? Are the addresses valid? Do any participants reside outside the United States? Many notices are required to be sent during the termination process. An address and death search for all inactive participants may be prudent.
Verifying addresses prior to termination can save time and frustration.

Have all of the accrued benefits been calculated and certified? If yes, does the data include the information that was used to calculate the stored accrued benefit? During the termination process, a Notice of Plan Benefits will need to be supplied to all participants. This notice is required to provide the personal data used to calculate the participant’s accrued benefit along with a statement requesting that the participant correct any information they believe to be incorrect. If the plan has frozen accrued benefits but the calculation data is not available, the best available data must be provided to the participant on the Notice of Plan Benefits along with a statement giving the participant the opportunity to provide the missing data.

If benefits are not calculated and certified, does the data contain all of the information necessary to calculate the benefits? Final benefits will need to be calculated, not estimated, for all participants.

Data is fluid and constantly changes. Participants move, die, quit, get married/divorced, and retire during the termination process. Ensuring and maintaining accurate data is key to preparing for a plan termination.

Retirement plans: Key dates and deadlines for 2017

Milliman has published 2017 retirement plan calendars for single-employer defined benefit (DB) plans, multiemployer DB plans, and defined contribution (DC) plans. Each calendar provides key administrative dates and deadlines.

2017 single-employer DB calendar
2017 multiemployer DB calendar
2017 DC plans calendar

Along with downloading each calendar, be sure to follow us at Twitter.com/millimaneb where we tweet upcoming dates and deadlines for plan sponsors.

Milliman brings sustainability to multiemployer plan

In this article, Milliman consultant Victor Harte discusses how the firm helped one multiemployer pension fund implement the Milliman Sustainable Income PlanTM (SIP) to address issues that were adversely affecting the fund’s employers and retirees.

Here is an excerpt:

After reviewing numerous alternative plan designs, including shifting to a defined contribution plan, Milliman identified a solution that satisfied the trustees. Specifically, the trustees were looking for a way to:

• Continue to provide lifetime benefits to the members
• Eliminate potential withdrawal liability concerns for new employers
• Reduce the unfunded liability related to existing employers
• Provide retirees with a measure of cost-of-living protection
• Maintain the same level of benefits for existing and future participants

Milliman was able to help the trustees meet their goals by changing the plan to a Milliman Sustainable Income PlanTM (SIP) and by modifying the withdrawal liability procedures to make use of the direct attribution method….

…The trustees implemented the required changes for future accruals. The existing benefits are protected and will increase due to future increases in pay. The benefits provided under the new SIP are equal in value to those provided under the prior formula. Additionally, the SIP benefits for future retirees are expected to increase over time and are anticipated to provide some protection against inflation.

One of the larger contributing employers was recently sold as part of a potential bankruptcy. When these types of transactions occurred in the past, the acquiring entity refused to participate in the plan due to concerns about potential withdrawal liability. However, as a result of the plan design changes and the change in the withdrawal liability procedures, the acquiring employer agreed to participate in the plan.

To learn more about the SIP, watch the following video.

Not-for-profit reduces payroll using voluntary early retirement program

In his article “Reducing payroll without involuntary terminations,” pension actuary Zorast Wadia discusses how Milliman helped a not-for-profit client reduce its payroll through a voluntary early retirement program (VERP).

Here is an excerpt:

The client considered a VERP that offered numerous types of incentives, including:

• Additional years of service and/or age credits
• Cash payment(s)—for example, one or two weeks of pay for each year of service
• Additional benefits, such as an extension of health coverage
• “Bridge” payments, where employees are paid an annuity from their termination date to a fixed date (such as age 62 or 65). …

…The window was offered to participants who were age 57 or older with early retirement benefits being calculated as if retiring participants were two years older with an additional two years of service. The additional years of service reward participants retiring early with higher benefits while the additional age criteria results in a lower reduction in benefit for most of the participants in the window group who would be retiring early. The client decided against offering an extension of health coverage because this option was deemed too costly.

The client also decided to amend the early retirement provisions in the retirement plan for future retirees. The early retirement eligibility was lowered from age 60 with 20 years of service to age 58 with 10 years of service going forward. The client felt that these changes would allow for a more orderly retirement of the work force and help facilitate work force transitions better in the future. Thus, not only was the client able to continue rewarding its employees with a strong retirement program, it was also able to redesign the retirement program to accomplish its human resource objectives.

Pension data cleanup can reduce costs

Data cleanup can help defined benefit (DB) plan sponsors avoid incorrect participant payments and the cost associated with correcting mistakes. Milliman’s Audrey Palmer discusses the potential mishaps that may result from inadequate pension data and the benefits of data cleanup in the DB digest article “Why good data matters.”

Here is an excerpt:

Each year, your plan’s compliance with Internal Revenue Service and Department of Labor regulations also depends on the integrity of the plan’s data. Incomplete or incorrect data can potentially cause noncompliance with many plan-disqualifying regulations, including disclosure requirements, minimum funding requirements, and minimum coverage, participation, and vesting requirements. It can also cause a serious financial burden to participants when excise taxes are imposed that are due to late payment of required minimum distributions. …

… A data cleanup project can make a significant impact to the ongoing administration of your plan by enhancing the individual participant experience, helping to ensure compliance with regulatory requirements, and keeping the plan agile and able to respond to an ever-changing financial and regulatory landscape.

The up-front cost of a data cleanup project is justified when care has been taken to identify the gaps that are easiest to close and will make the most impact. Milliman consultants have experience with this prudent analysis and can help determine which cleanup projects will produce the best return on investment.

An essential part of any data cleanup project is an evaluation of the ongoing periodic data files that provide the participants’ statuses, compensation, hours, and any indicative data to the recordkeeper. Each payroll should undergo a validation check to make certain the expected population, expected totals, and expected statuses are loaded with each file. These checks, combined with a comprehensive analysis of the file produced by the plan sponsor, will catch most errors that could cause ongoing data issues.