Milliman and Barnett Waddingham, UK’s largest independent provider of actuarial, administration and consultancy services, today announced a joint venture.
Operating under the name of MBW International, the joint venture brings together the significant expertise of the two independent firms to deliver superior global retirement benefits advice to companies with headquarters in the UK and global companies with UK operations. The new organisation will offer truly independent global pensions advice from a single source, with full access to the experience and resources that live within the Barnett Waddingham and Milliman businesses. It will follow their shared values of providing quality, independent advice to their clients.
Nick Salter, Senior Partner at Barnett Waddingham, said: “MBW International will allow us to extend our global pensions expertise to support the full needs of multinational organisations with their overseas pension arrangements, whilst retaining the independent ownership structure of Barnett Waddingham. Clients of MBW International can expect to receive the same high quality, independent advice that Barnett Waddingham and Milliman are already known for.”
Steve White, Milliman CEO, said: “The establishment of MBW International enhances the range of retirement consulting services Milliman can offer its multinational and UK-headquartered clients. The obvious synergies between Milliman and Barnett Waddingham are built on our shared values: Independence, quality, and dedication to superior client service.”
Milliman has released the results of its 2017 Pension Funding Study, which analyzes the largest corporate pension plans sponsored by 100 U.S. public companies. In 2016, these pension plans experienced a $21.7 billion decrease in funded status, the result of a $54.0 billion increase in the projected benefit obligation (PBO) that was only partially offset by a $32.3 billion increase in the market value of plan assets. As a result, these Milliman 100 plans finished off the year with a funded ratio of 81.2%, down from 81.9% the year before. But the $21.7 billion deterioration and incremental drop in funded status mask a year that experienced volatility across the board for pension plans.
The last year was quite the tug-of-war for these pension plans. Investment performance exceeded expectations, with the 100 largest U.S. pensions experiencing returns of 8.4%—compare that with 0.8% the year prior. But the volatile interest rate environment saw the discount rate plummet by 30 basis points. In 2016, these dynamics resulted in a funded ratio that oscillated back and forth for most of the year before the postelection bump. The end result was a funded ratio of 81.2%—not that far off from where we’ve been at the end of 2015 and 2014.
Study highlights include:
Analysis of asset gains. The 8.4% investment returns experienced by these pension plans was well above the 7.0% return expectation set for 2016. Meanwhile employers’ 2016 plan contributions were up 38% from the year prior. One possible reason for the higher plan contributions is that they improve funded status, resulting in lower Pension Benefit Guaranty Corporation (PBGC) premium expenses.
Impact of updated mortality assumptions. Further decreases in future life expectancy for the second year in a row result in significant reductions in projected benefit obligation (PBO) for several Milliman 100 companies.
Use of spot rates increases by 24%. Forty-six of the largest 100 plan sponsor companies will consider recording the fiscal year 2017 pension expense using an accounting method change linked to the spot interest rates derived from yield curves of high-quality corporate bonds. The move to spot rates will result in pension expense savings.
Pension risk transfers continue. The estimated sum of pension risk transfers to insurance companies (“pension lift-outs”) and settlement payments increased from $11.6 billion in FY2015 to $13.6 billion in FY2016.
To view the Milliman Corporate Pension Funding Study, click here. To receive regular updates of Milliman’s pension funding analysis, contact us here.
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.
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.
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.
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.