Tag Archives: adjustable pension plan

Retirement risks side by side: DB vs. DC vs. VAPP

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

In this video blog, I discuss the retirement risk allocation between a plan sponsor and the plan’s participants in a variable annuity pension plan (VAPP) structure compared with risks associated with traditional defined benefit (DB) plans and defined contribution (DC) plans. I also explain how a VAPP can reduce risks of inflation, portability, and interest rate.

View our VAPP video blog series here.

For more information on VAPPs, click here, or visit our VAPP reading list.

Benefits side by side: DC vs. DB vs. VAPP

Coffing-KellyThe Variable Annuity Pension Plan (VAPP) is now the Milliman Sustainable Income PlanTM (SIP).

Variable annuity pension plans (VAPPs) provide secure, lifelong, inflation-protected retirement benefits. VAPPs combine the best of what traditional defined benefit plans do regarding longevity protection and lifelong income and what defined contribution plans can do to combat inflation. In this presentation, I explain the advantages for retirees of VAPPs compared with these more traditional plan structures.

For more information on VAPPs, click here, or visit our reading list.

Plan funding side by side: Traditional DB and VAPP

Coffing-KellyThe Variable Annuity Pension Plan (VAPP) is now the Milliman Sustainable Income PlanTM (SIP).

In recent months, we have featured quite a few articles on the resurgence in popularity of variable annuity pension plans (VAPPs). They provide lifelong inflation-protected benefits to participants while employers make predictable plan contributions, similar to 401(k) plans.

In this presentation, I discuss how funding a VAPP compares with funding a traditional defined benefit pension plan. The presentation also touches on how Milliman helps plan sponsors stabilize benefits for retirees through reserves.

For more information on VAPPs, click here, or visit our reading list.

Employee communications: Transition to a Sustainable Income Plan

tenBroek-HeidiRetirement plan sponsors are increasingly considering transitioning their current retirement plans to the Milliman Sustainable Income Plan™ (SIP). This allows them to have stable costs like those of a 401(k) plan, while providing participants with reliable, lifelong income like a traditional pension plan.

Communicating the change to a SIP, however, may feel daunting for plan sponsors. Effective communications ensure that employees understand how the SIP works, how it will affect them, and why a SIP is a stable retirement solution for the sponsor and for them. Breaking down plan concepts into digestible, clear messages is key. Using a variety of communication vehicles—meetings, newsletters, personalized projections, etc.—increases the odds of success. In fact, we’ve found employees are excited about SIPs once they understand how they work.

A short video created for employees can be one of your most powerful tools in communicating a new kind of benefit. The combination of images, written text, and oral explanations are very effective in conveying how a SIP works. It provides a solid foundation and a basic understanding that makes the detailed communications to follow more accessible. Below is a sample video created as an introduction to a SIP transition.

Note that the Milliman Sustainable Income Plan™ (SIP) was called a Variable Annuity Pension Plan (VAPP) at the time this video was produced.

For more Milliman perspective on SIP, click here.

Milliman infographic: Variable annuity pension plan

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

The variable annuity pension plan (VAPPs) design combines features from traditional defined benefit plans along with features from defined contribution plans. This infographic illustrates specific retirement plan sponsor needs that VAPPs help address.

Our “Variable annuity pension plan reading list” also provides more perspective from Milliman consultants.

vapp-2-1000x

VAPPs: Coming soon to a retirement plan near you?

Camp,-GrantThe Variable Annuity Pension Plan (VAPP) is now the Milliman Sustainable Income PlanTM (SIP).

As previously written about on this blog in April 2014 and May 2013, variable annuity pension plans (VAPPs) are regaining interest for retirement plan sponsors because their structure combines many of the strengths of traditional defined benefit plans with the strengths of traditional defined contribution plans.

Defined benefit plan features of VAPPs
As with traditional defined benefit plans, benefits in a VAPP are paid for the lifetime of the participant and beneficiary. While the level of the benefit may not be guaranteed, stabilization strategies exist to dramatically reduce the possibility of retiree benefit declines and the participant does not need to worry about running out of money during retirement. VAPPs pool longevity risk within the plan and have professional asset management like a traditional defined benefit plan, enabling the plan to provide larger average benefits per dollar contributed compared to individually directed defined contribution accounts. These defined benefit plan characteristics are desirable for employers looking to attract and retain top talent.

Defined contribution plan features of VAPPs
As with defined contribution plans, VAPPs have controllable employer costs and no funding surprises. VAPPs maintain their funded status in all market conditions, which eliminates concerns about underfunding. This means that plan sponsors can set a target contribution level such as a fixed dollar amount or fixed percentage of pay, similar to a defined contribution plan. Additionally, participants participate in market upside, providing a portable benefit (meaning that a participant is not harmed by switching jobs mid-career) and expected inflation protection during retirement.

To learn more about VAPPs, visit this reading list.