Auto plan features produce uptick in DC plan savings and participation

Defined contribution (DC) plan sponsors can struggle with employee enrollment and participation. This was the case with one safe harbor-designed DC plan offering participants 100% matching contributions up to 4% of pay.

The sponsor eventually set a new goal to help employees save at least 10% of pay while taking advantage of the employer match. Milliman worked with the sponsor to attain its goal by implementing auto plan features to effectively increase participation and retirement savings for individuals. Consultant Kevin Skow explains how in his article “Automatic enrollment with auto increase, re-enrollment, and fee equalization.”

Regulatory roundup

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

CBO issues cost estimate of House GOP tax bill and scores estimated deficits and debts under Senate tax bill
In the House, H.R. 1, the Tax Cuts and Jobs Act, would amend numerous provisions of U.S. tax law. The staff of the Joint Committee on Taxation (JCT) estimates that enacting the bill would reduce revenues by about $1,438 billion over the 2018-2027 period, and decrease outlays by $2 billion over the same period, leading to an increase in the deficit of $1,437 billion over the next 10 years. For the Senate’s tax bill, the staff of the Joint Committee on Taxation determined that provisions in the Chairman’s Mark would increase deficits over the 2018-2027 period by $1.5 trillion (not including any macroeconomic effects). By the estimate of the Congressional Budget Office (CBO), additional debt service would boost the 10-year increase in deficits to $1.7 trillion. As a result of those higher deficits, debt held by the public would increase from the 91.2% of gross domestic product in CBO’s June 2017 baseline to 97.3%.

For more information, click here and here.

IRS releases new information package
Defined Contribution Listing of Required Modifications and Information Package contains samples of plan provisions that have been found to satisfy certain specific requirements of the Internal Revenue Code, taking into account changes in the plan qualification requirements, regulations, revenue rulings, and other guidance in the 2017 Cumulative List of Changes in Plan Qualification Requirements (Notice 2017-37, 2017-29 I.R.B. 89). The package has been prepared to assist providers who are drafting or redrafting plans to conform to applicable law and regulations, with the goal that it will be a key factor in enabling the Internal Revenue Service (IRS) to process and approve preapproved plans more quickly.

For more information, click here.

Multiemployer program deficit widens to $65.1 billion, single-employer program improves according to PBGC annual report
The Fiscal Year 2017 Annual Report of the Pension Benefit Guaranty Corporation (PBGC) shows that the deficit in its insurance program for multiemployer plans rose to $65.1 billion at the end of fiscal year (FY) 2017, up from $58.8 billion a year earlier. The increase was driven primarily by the ongoing financial decline of several large multiemployer plans that are expected to run out of money in the next decade.

The PBGC’s Single-Employer Insurance Program continued to improve as the deficit dropped to $10.9 billion at the end of FY 2017, compared to $20.6 billion at the end of FY 2016. The primary drivers of the continued improvement include premium and investment income and increases in the interest factors used to measure the value of future liabilities.

For more information, click here.

Equal Employment Opportunity Commission reports twice as many discrimination lawsuits in 2017
The Equal Employment Opportunity Commission (EEOC) filed more than twice as many discrimination lawsuits in FY 2017 as it did in the previous year, while also putting a significant dent in a persistent backlog of pending investigations that had recently drawn the ire of lawmakers, according to an agency report.

For more information, click here.

Milliman FRM Market Commentary: October 2017

Global Equities Set Record With 12th Consecutive Positive Monthly Return

In this month’s commentary, Milliman’s Joe Becker, Adam Schenck, and Jeff Greco address the following:

  • Prior to 2017, dating back to 1988, the global equity market had recorded just one streak of 11 consecutive months of positive returns (ending February 2004). October 2017 marks the first time it has notched 12 consecutive months of positive returns.
  • Notwithstanding their strong growth, earnings multiples remain below their post-crisis peak from August 2016, amid strong 2017 earnings growth.
  • Volatility on the S&P 500 Index touched its 2017 low in October, reaching a level not seen since August 1965.
  • From the start of its time series in 1990 through 2016, the VIX never closed below 10 more than four times in any calendar year. In October it did it 11 times, bringing its 2017 total to 35.
  • EM equities resumed their ascent in October after a small decline in September, bringing their year-to-date (YTD) total return to 26.7%, their best YTD return through October since 2009.
  • Already up 27% YTD through the end of Q3, tech stocks posted their strongest month of 2017, rising 7.7% and bringing their YTD return to 35.7%

To learn more, download the full commentary at

Corporate pensions experience back-to-back monthly gains with $7 billion improvement in October

Milliman has released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In October, these pensions’ funded status experienced a $7 billion uptick, increasing for the second month in a row and bringing the total funded status gain to $32 billion since August 31. October’s improvement was the result of robust 1.19% investment returns, which saw the Milliman PFI plans’ funded ratio climb to 84.7% for the month. Cumulative investment gains in 2017 are 9.57% year-to-date; by comparison, the 2017 Milliman Pension Funding Study reported that the monthly median expected investment return during 2016 was 0.57% (7.0% annualized).

While October’s investment returns are well above expectations, funded status gains were partially offset by the continued low discount rate environment. It will be interesting to see what, if any, changes are in store to interest rate strategy with the nomination of a new Federal Reserve chair.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.76% by the end of 2017 and 4.36% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 87% by the end of 2017 and 100% by the end of 2018. Under a pessimistic forecast (3.56% discount rate at the end of 2017 and 2.96% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 84% by the end of 2017 and 77% by the end of 2018.

To view the complete Pension Funding Index, click here. To see the 2017 Milliman Pension Funding Study, click here.

To receive regular updates of Milliman’s pension funding analysis, contact us here.

Year-end compliance issues for single-employer retirement plans

By year-end 2017, sponsors of calendar-year single-employer retirement plans must adopt necessary and discretionary plan amendments to ensure compliance with the statutory and regulatory requirements of ERISA and the tax code. This Client Action Bulletin (CAB) looks at key areas—including administrative compliance issues—that sponsors of such defined benefit (DB) or defined contribution (DC) plans should address by December 31, 2017.

Regulatory roundup

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

Relief for victims of Hurricane Maria and the California wildfires
Internal Revenue Service (IRS) Announcement 2017-15 provides relief to taxpayers adversely affected by Hurricane Maria and recent wildfires in California (California Wildfires). The announcement allows individuals in qualified employer plans to use retirement assets to alleviate hardships caused by these disasters. The IRS announcement also provides relief from certain verification procedures that may be required under retirement plans with respect to loans and hardship distributions.

For more information, click here.

Memo regarding missing participants and beneficiaries and required minimum distributions
The IRS released a memorandum directing employee plans examiners not to challenge a qualified plan as failing to satisfy the required minimum distribution (RMD) standards under Internal Revenue Code (IRC) § 401(a)(9) in the circumstances set forth below. The memo addresses only the application of IRC §401(a)(9) to certain circumstances involving a plan’s action related to a benefit of a participant or beneficiary whom the plan is unable to locate. It does not address the application of any other qualification requirements or other applicable law, including Title I of ERISA.

For more information, click here.

Guarantee limit for single-employer defined benefit plans for 2018 announced
The Pension Benefit Guaranty Corporation (PBGC) announced that the guarantee limits for single-employer plans that fail in 2018 will be 0.95% higher than the limits that applied for 2017 as a result of the indexing rules provided in ERISA. A table showing the single-employer plan guarantee limits for various ages and payment forms is available on the PBGC’s website. The guarantee limits for multiemployer plans are not indexed and, therefore, have not changed.

To view the table, click here.

Treasury final rule on mortality tables
The Government Accountability Office (GAO) released a report on the final rule published by the U.S. Department of the Treasury, IRS, entitled “Mortality Tables for Determining Present Value under Defined Benefit Pension Plans.”

According to the GAO analysis, the IRS summarized the costs of this final rule by stating that substantially all of the amounts involved (decreased tax revenue, increased plan contributions and PBGC premiums) constitute transfer payments rather than costs. The amounts are monetary payments from one entity to another that do not affect total resources available to society. The IRS believes that the incremental administrative costs to implement this regulation are negligible because plan sponsors would have to incur the same costs to update their plan administration software to reflect the new mortality tables under these regulations as they would incur in implementing the annual update to the mortality tables that would apply in the absence of these regulations. The final rule has tables showing the impact of the rule and revenue collection, contribution requirements, and PBGC premiums.

For more information, click here.

Present value of PBGC maximum guarantee
The PBGC posted a table showing the applicable present values for 2018 plan years. The PBGC also posted a two-column version of the table for convenient copying.

For more information, click here.