Tag Archives: pension risk management

Integrated risk management roundtable for Dutch pension funds

Milliman has organized a roundtable discussion to explore integrated risk management (IRM) for Dutch pension funds, for Wednesday, 27 September 2017, in Amsterdam. While the Dutch National Bank (DNB) devotes a lot of attention to IRM and expects pension funds to have a structured approach, we find that many funds have difficulty formalising one.

At this roundtable, Milliman consultants will discuss the following:

• What is IRM and what does it entail?
• What are common IRM strategies and policies for Dutch pension funds?
• How can the pension board perform a thorough risk assessment?
• How can the board ensure proper commitment to IRM?
• How can the board ensure adequate monitoring and evaluation?
• How can the board ensure that the DNB is satisfied with a fund’s IRM?

Seats are limited. If you would like to attend, email us here for more information.

Roundtable on UK defined benefit pension schemes

MBW International, a UK-based joint venture between Milliman and Barnett Waddingham, has organised a roundtable discussion entitled “UK defined benefit pensions, a current overview: What can we learn in the Netherlands?” on Tuesday, 3 October 2017.

The roundtable is aimed at Dutch companies with a deficit in their UK defined benefit (DB) pension schemes as well as companies interested in learning more about the latest UK pension developments.

The roundtable will focus on the following topics:

  • An update on the UK pensions market and the impact it is having on Dutch companies—this will include recent analysis by the leading UK actuarial firm Barnett Waddingham LLP (the analysis will be distributed at the event).
  • Current market opportunities which could help companies tackle their UK pension problems, including:
  1. Changes to the way UK employees can access their pension savings that make it more attractive for them to transfer DB benefits into defined contribution (DC) arrangements. This helps reduce the scale of the historic DB obligations.
  2. Continuing developments in the UK bulk annuity market.
  • What can we learn in the Netherlands from our UK counterparts?
  • Management of international pension plans—how can this be done in a more harmonised manner to increase efficiency, reduce risk, and achieve greater consistency across a business.

MBW International Directors Nick Griggs and Andrew Vaughan are guest speakers. Both Nick and Andrew have considerable experience dealing with these UK pension issues.

Seats are limited. If you would like to attend, email us here for more information.

Potential solutions for reducing PBGC premiums

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.

Preparing a pension plan termination

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.

Communicating lump-sum windows

Lump-sum windows are common ways for defined benefit (DB) plan sponsors to shed pension liabilities. According to Milliman consultant David Benbow, effective communication is essential when employers consider offering of a lump-sum window. He offers his perspective in a recent Money Management Intelligence article.

Here is an excerpt:

Three things are necessary to make a lump-sum window successful: communication, communication, communication. In addition to the required legal notices informing participants of their rights, you should do your best to create a package that is eye-catching (not many people read their mail after it goes in the trash) and easy to read (if it reads like stereo instructions, people will jump to the election forms and make up their own rules). The communication should spell out the pros and cons of taking a lump sum so that the participant can make an informed decision. The last thing anyone wants is for a well-intended offer to turn into a class action because participants were misled.

It takes time to create a good communication package, and usually there will be several people who wants to take a whack at the piñata, including legal counsel. Just know that clear communication up front will reduce the number of questions and follow-up on the back end.

For more Milliman perspective on lump-sum distributions, click here.

Lack of guidance may extend “window” for lump-sum distributions

The Internal Revenue Service (IRS) has not issued the anticipated guidance pension plan mortality tables. A recent Bloomberg BNA article quotes Milliman’s Zorast Wadia discussing what plan sponsors must consider, or reconsider, if the IRS does not issue guidance in the coming months.

“The longer we go into 2016 without seeing the IRS issue guidance on new mortality tables,” the less likely such guidance will be issued this year and in place for plans to follow before 2018, said Zorast Wadia, a principal and consulting actuary in the benefits consulting firm Milliman’s New York office… sponsors may want to begin monitoring interest rates to determine the optimal time to offer lump-sum distributions, Wadia said.

Until recently, many plan sponsors and their advisers have been anticipating that these new mortality tables would be required for plans in 2017. The tables are expected to incorporate longer life expectancies and thus make it more expensive for sponsors to offer lump-sum payouts to participants. A delay in the required use of the tables could affect a sponsor’s decision on whether to offer a lump-sum window—a temporary opportunity to take benefits in that form—in 2016.

Wadia said the IRS must also decide whether its new guidance will incorporate the original base tables issued by the Society of Actuaries [SOA] in 2014 with their revised projection scales issued in 2015 or some other basis.

In a 2015 Benefits Law Journal article, Zorast offered perspective on how implementation of the new SOA mortality tables would reduce the accounting gains that are one of the key economic benefits associated with lump-sum distributions. Therefore, if the IRS does not issue guidance concerning mortality tables this year, plan sponsors may have an extended window to consider the potential benefits of offering lump-sum distributions. Any lump-sum offering would of course require a strong communication and education effort to ensure that plan participants are well equipped to make the important retirement decision that lies ahead.

To read the article, click here.