Tag Archives: lifelong benefits

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.

Avoiding poverty in a DC-only world

Bradley_JeffIn a defined contribution (DC) world, retirees are forced to make critical decisions, often with little or no assistance. Most of these individuals choose to take a single lump-sum distribution either immediately or soon after they terminate employment.

This paper from the Center for Retirement Research at Boston College asserts that distribution provisions in DC plans are critical factors in evaluating the risk of falling into poverty in old age.

Specifically, the paper states that reliance on non-annuitized DC benefits with fairly easy access to lump-sum distributions puts elderly households at risk of not having sufficient income (or assets) to sustain themselves or, if they are not already in poverty at retirement, falling into poverty as the household members age or die off.

As workers continue to age, this will become a greater problem as those covered by defined benefit plans retire from the workforce and are replaced by those covered only by DC plans. So what can plan sponsors do to minimize the probability of their retirees falling into poverty?

Extrapolating from thoughts in the paper, the conclusion is that plan sponsors should encourage the following behaviors:

• Not taking lump-sum distributions before retirement
• Annuitizing some or all DC benefits when possible
• Choosing joint-and-survivor options when available

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A sustainable retirement plan for sponsors and participants

The Milliman Sustainable Income PlanTM (SIP) is a good retirement plan option for employers seeking predictable contributions while offering employees lifelong income. According to Milliman consultant Kelly Coffing, the SIP offers sponsors and participants the following:

• Professional asset management throughout participants’ working and retired years
• Maximized retirement benefits per dollar of employer contribution
• Lifelong inflation-protected income
• Stable, predictable contributions for sponsors

For more perspective, read Kelly’s article in Money Management Intelligence entitled “Retirement plan innovation that opens up investment possibilities.”

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

Communicating a defined benefit plan conversion

Milliman consultants assisted one particular multiemployer defined benefit plan’s transition to a stabilized Milliman Sustainable Income Plan™ (SIP), formerly known as the variable annuity pension plan (VAPP). The conversion required a communication strategy conveying the new plan’s design to participants. In this article, Jessica Gonchar describes how the firm implemented an employee communications campaign explaining the basic principles of a SIP and how it differs from the prior 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.