Explaining the Milliman Sustainable Income Plan design

Recently, Financial Adviser magazine published an article highlighting the benefits of the Milliman Sustainable Income Plan™ (SIP), which can provide sponsors and participants the best of both defined benefit (DB) and defined contribution (DC) plan worlds. Milliman consultant Kelly Coffing is quoted explaining the SIP plan design.

Here is an excerpt:

“The design is truly sustainable in a way that defined benefit and defined contribution plans are not,” explains Kelly Coffing, Milliman principal and consulting actuary, based in Seattle. The SIP, she continues, offers “lifelong income and funding stability while maintaining a balanced portfolio to get the best risk adjusted returns.”

How? The SIP is technically a defined benefit plan, but one in which benefits adjust up or down with the plan’s performance, “thereby keeping assets and liabilities in balance,” says Coffing. The plan establishes a base investment return or “hurdle rate.” If annual returns equal that rate, the plan functions like any other defined benefit plan. But if they lag or surpass that rate, the benefits increase or decrease accordingly.

“Like a traditional defined benefit plan, participants receive a lifelong monthly benefit,” says Coffing. “Unlike a traditional plan, the level of the monthly benefit is not fixed, but can adjust, up or down, based on actual investment returns of the plan.”

Contributions, on the other hand, don’t have to adjust. The SIP is designed for a specific contribution level that doesn’t change from year to year and, as such, is kept fully funded in all economic environments. “The contributions are directly tied to the benefit levels desired in the plan and are mostly related to the level of contributions employers want to make for retirement and/or the desired level of benefits to be provided,” says Coffing.

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

The Stabilized Variable Annuity Pension Plan (VAPP) is now the Milliman Sustainable Income Plan™ (SIP).

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