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  #911  
Old 10-20-2019, 01:15 PM
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Mary Pat Campbell
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UNITED KINGDOM

https://www.forbes.com/sites/ebauer/.../#4b8ca69946c2
Quote:
How Has Pension Legislation Affected NHS Breast Cancer Treatment Wait Times? Some Odd News From The UK
Spoiler:
Here’s a headline one doesn’t see every day:

“Pensions crisis blamed for trust’s worst-ever breast cancer waits.”

That’s from the UK journal HSJ and, yes, I am not an expert on the issue but merely stumbled upon it.

What’s going on?

“In June, Worcestershire Acute Hospitals Trust saw just 4.6 per cent of patients referred with breast symptoms within two weeks. This is the lowest result ever reported by the trust, HSJ can reveal.


“Trusts are expected to see 93 per cent of such patients within two weeks to promote early breast cancer detection. . . .

“Worcestershire last hit the target in February this year, when 96 per cent of breast symptom patients were seen within two weeks, according to earlier board papers. Since May, its results have ranged from 4.6 to 23.6 per cent.”

Today In: Money
And what does this have to do with pensions?

Here’s an explanation from The Telegraph this past August:

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“New rules mean GPs and consultants can be hit with tax rates of more than 90 per cent on their earnings - including their pension contributions - if they earn more than £110,000 a year.

“It means consultants are substantially cutting back on any overtime or weekend work as they can be taxed thousands for earning a penny over the threshold. . . .

“A survey by the British Medical Association found that 42 per cent of GPs and 30 per cent of consultants have cut their hours because of the pensions rules.

“Waiting lists have soared by 50 per cent in three months in some parts of the country because doctors are refusing to work, in order to protect their pensions, senior managers have warned.

“In one case, a doctor who breached their £110,000 threshold income, by just £3, after doing an additional shift, triggered a £13,000 tax pensions tax charge, even though the extra income was not pensionable.”

London financial newspaper City A.M. further explains

“The tapered allowance was introduced by George Osborne in 2016 to limit the amount of tax relief available to high earners. While the standard annual allowance (the amount you can pay into your pension without being taxed at your marginal rate) is £40,000, the pensions taper means that anyone earning more than £150,000 a year sees their tax-free annual allowance gradually reduced.

“Essentially, for every £2 your adjusted income goes over £150,000, your annual allowance for that year falls by £1. . . .

“The general public doesn’t usually have much sympathy for high earners in receipt of gold-plated pensions, but the issue hit the headlines when senior doctors and consultants started choosing to simply avoid the risk of massive tax penalties by turning down overtime, or even retiring early.

“The costs of exceeding the limit can be huge. In some cases, doctors and nurses have ended up worse-off for doing overtime, and there have been reports of people having to remortgage their homes to foot the tax bills.”

Now this all sounds preposterous, for the government in the UK to have designed a tax structure in such a manner as to actively discourage doctors from working overtime. How could anyone have done so, and why can’t they just unwind the mistaken legislation?

But this is, of course, not as simple as the British having made a mistake in their taxation structure. As the various candidates for president of the United States announce the ways in which they’d radically transform the tax system in the US, it’s a useful reminder of the risk of unintended consequences, however well-intentioned a plan may be, however noble in its desire to structure taxation in what’s intended to be the most moral manner possible. In fact, this ought to be a useful object lesson and a reminder to assess skeptically any grand plan a politician proposes.


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  #912  
Old 10-21-2019, 10:34 AM
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Mary Pat Campbell
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GE

https://www.plansponsor.com/ge-conti...paign=Newsdash
Quote:
Could GE Have Continued Its DB Benefits?
GE is freezing pension plans and offering a lump-sum window to certain former employees, but John Lowell, with October Three, questions whether a design-based solution would have helped the company continue to offer DB benefits to employees.
Spoiler:
GE announced it is taking three actions related to its U.S. retirement benefits as part of its strategic priority to improve its financial position.

The company is freezing the U.S. GE Pension Plan for approximately 20,000 employees with salaried benefits, and U.S. Supplementary Pension benefits for approximately 700 employees who became executives before 2011, effective January 1, 2021. It is also pre-funding approximately $4 billion to $5 billion of estimated minimum Employee Retirement Income Security Act (ERISA) funding requirements for 2021 and 2022.

GE is also offering a limited time lump-sum payment option to approximately 100,000 eligible former employees who have not started their monthly U.S. GE Pension Plan payments.

In total, the actions announced are expected to reduce GE’s pension deficit by approximately $5 billion to $8 billion and industrial net debt by approximately $4 billion to $6 billion. At year-end 2018, the plan’s funded ratio was 80%, under generally accepted accounting principles (GAAP). After distribution of the lump sum amounts, the company expects to record a non-cash pension settlement charge in the fourth quarter of 2019, which will be determined based on the rate of acceptance.

Kevin Cox, chief human resources officer at GE, said, “Returning GE to a position of strength has required us to make several difficult decisions, and today’s decision to freeze the pension is no exception. We carefully weighed market trends and our strategic priority to improve our financial position with the impact to our employees. We are committed to helping our employees through this transition.”

John Lowell, Atlanta-based partner and actuary for October Three, notes that GE has taken steps that a number of other large organizations have taken. He concedes that without knowing what other options GE may have considered or were presented to the company, it’s not possible to decide if this was the optimal solution for it. However, he says, “In our discussions with defined benefit sponsors in similar situations, we’ve often apprised them of options that don’t result in an exit from the defined benefit system, but do serve the purpose of limiting volatility in liability growth and in cash and accounting costs. Such design-based solutions may become a wave of the future once employers see that perhaps better results can be achieved by staying in the DB system.”

According to Lowell, traditional risk transfer solutions smooth out the financial effects of a defined benefit, but they do so at a substantial psychological cost to those employees who are depending on lifetime income. “If a company has been in the defined benefit arena for as long as GE, then what they have essentially done is made a commitment to providing lifetime income solutions at a fair price to their employees. What has driven many companies away from this is not the lifetime income concept, but the volatility and unpredictability of the costs of defined benefit.”

One suggestion for a design-based solution is a market-based cash balance plan, according to Lowell. “It gives employees the opportunity to get to choose between lump sums or fairly priced lifetime income (within the plan) and they do so with cost predictability and stability for the employer. In my opinion, it’s the design that forward-thinking employers will be looking at for the next generation. The key about market-based cash balance is that it eliminates most of the unwanted volatility.”


https://knowledge.wharton.upenn.edu/...ign=2019-10-10
Quote:
GE’s Pension Freeze: Will It Help — or Hurt?

Spoiler:
General Electric’s recent decision to freeze and otherwise alter pension benefits for employees is in some ways symbolic of the decades-long march by major companies away from traditional defined benefit plans, where employers guarantee a specific retirement nest egg for each employee. Those plans have been steadily replaced by defined contribution plans, where financial responsibility for retirement shifts significantly to employees. In defined contribution plans, employees set aside a portion of their salaries, often with matching employer contributions.

GE froze the defined pensions of 20,000 workers with salaried benefits, supplementary pension benefits for some 700 executives, and offered buyouts to another 100,000 former employees who haven’t yet started receiving monthly pensions. GE expected the move, effective January 1, 2021, to reduce its pension deficit by $5 billion-8 billion and net debt by about $4 billion-6 billion. It will not affect those already receiving pension payments.

GE’s pension plans have been closed to new enrollees since 2012. The latest freeze marks GE CEO Larry Culp’s continued efforts to try and reduce company debt, which stood at about $55 billion at the end of 2018. Last June, it set out a target of reducing that to $25 billion by the end of 2020.

“Back in 1980, there were about 146,000 single-employer pension plans in the U.S., [but] today we’re down to about 44,000,” said Olivia S. Mitchell, Wharton professor of business economics and public policy. “What’s taken place instead is that defined contribution plans have grown from about 340,000 to 655,000 [over that period].” Defined contribution plans are popularly known as 401 (k) plans and as 403 (b) plans in the nonprofit sector.

“What may have shocked GE into rethinking their pensions finally is a double whammy,” said Marshall W. Meyer, Wharton emeritus professor of management. The first was a report in August by accounting expert Harry Markopolos, where he accused GE of “Enronesque fraud” in its accounting practices, saying that its long-term care insurance business was underfunded by $29 billion. GE defended its accounting practices and said it had “a strong liquidity position” in a statement at the time. The second blow came when ratings agency Fitch “basically validated” those concerns, Meyer added. “So, GE is not out of the woods yet.”

Mitchell and Meyer discussed the fallout of GE’s pension freeze on the Knowledge@Wharton radio show on SiriusXM. (Listen to the full podcast at the top of this page.)

GE’s pension and post-employment benefits programs were underfunded by some $27 billion at the end of 2018, according to a Wall Street Journal report. It had funded 76% of its projected pension obligations, the report added, citing data from consulting firm Milliman, Inc. The latest Milliman report noted that “despite … the worst asset performance since 2008,” the private single-employer defined benefit plans for the 100 U.S. public companies with the largest pension plans were funded to the extent of 87.1%, an improvement from the year-end 2017 funded ratio of 85.8%.

“The advent of the defined contribution plan has put more burden on our own shoulders to be smart about retirement savings.”–Olivia S. Mitchell

Lump sum payments of the kind GE is offering may make sense for two reasons, said Mitchell, who is also executive director of the Pension Research Council and director of the Boettner Center for Pensions and Retirement Security. “First of all, people love lump sums,” she noted. “They don’t really understand annuities, which is part of the problem here. And second of all, the GE pension is still 80% funded, meaning 20% underfunded. If for some reason GE were to go into bankruptcy, then the pension plan would be transferred to the federal government’s insurance agency, the Pension Benefit Guaranty Corporation (PBGC). And the PBGC itself is 23 years away from having a cash insolvency problem. Taking the odds into account, I can understand [why] some people might really value the lump sum.”

GE could offer buyouts to more employees as it attempts to reduce its pension liabilities. Mitchell noted that the terms are not yet clear for the lump sum payments offered to 100,000 employees who have left the company and are no longer on the payroll, but are not yet retired. The company has said that there will be no increase in the pension plan underfunding as a result of those payments. “What that suggests to me is that the lump sum buyouts will probably be less than the expected value of the lifetime income payments that the retirees would get if they accepted the long-term payments,” said Mitchell. “But how much less? We just don’t know yet.”

Culp’s Challenge: Focus and Trim

GE has been firing on other cylinders as well in trying to reduce its obligations. Mitchell noted that GE last year also cut retiree health benefits. “Instead of covering continued health care for people after they left, they decided to give retirees only a $1,000 a year and essentially issue them a happy hunting permit,” she said. “So, they’re trying to cut along all dimensions possible. But obviously this is giving employees and retirees a great deal of pause.”

Culp has his task cut out as he tries to sharpen the focus of the company on profitable businesses. Meyer noted that his predecessor, John Flannery, was replaced in the wake of weak performance of its power business. The company expected to take an impairment charge of $23 billion on account of that.

“Culp has tried to focus [the company] by trying to move what was a sprawling conglomerate into a business focused in two or three areas,” said Meyer. “One of them still is power generation. Another is aviation. It’s less clear what they’re going to do with health care and a couple of other businesses. Ultimately, it’s going to be a much smaller, much leaner and hopefully more profitable company.”

Meyer recalled that “GE at its peak was a brilliant acquirer of other companies,” with that trend peaking in the Jack Welch era. “Over time, it got harder and harder for GE to acquire promising companies, largely because of the growth of the private equity market,” he said. “It is no longer possible to operate as a conglomerate, looking for attractive assets and getting rid of those which don’t perform very well. As a consequence, the company has got to focus.”

The Coming Disenchantment

GE will also have to find ways to placate its executive ranks after it freezes their supplementary pension benefits if it has to retain them. Mitchell pointed out that supplementary pensions typically provide management ranks a retirement benefit above what the typical pension would pay. However, frequently, those supplementary pensions for executives are not pre-funded, she noted. “It’s really up to the health of the company to make good on those promises,” she said. “Now, GE’s decision to cut those supplementary benefits will mean that to keep top management, they’re going to have to make it up somehow, either with higher cash compensation or maybe more stock.”

“It is no longer possible to operate as a conglomerate, looking for attractive assets and getting rid of those which don’t perform very well.”–Marshall W. Meyer

Meyer agreed that the supplementary pensions issue would become a major issue for GE. “They are a promise, but they’re not legally guaranteed,” he said. “And so, GE is really in a bind. They can pull back substantially on them, but with the consequence that Olivia outlined.”

However, Meyer expected “the real pressure” to be so not much at the executive ranks, but in the middle management ranks. “GE was run for many years like a bureaucracy … and its compensation system was not thoroughly up-to-date,” he said. “Everyone within the individual businesses was on the same escalator based on the performance of that business. The amount of variation in compensation based on individual performance was not very large. And so, one of the things they are going to have to do is focus much more on compensating exceptional performance as well as retaining [talent], which they did do a good job of. That compensation, I think, will allow people some cushion for accumulating retirement benefits.”

GE’s stock performance has been underwhelming in recent times, which makes stock-based compensation to retain management executives less attractive. “In that sense, management is in the same boat as the rank-and-file employees, who during the heyday of the company put essentially all of their retirement money when they had the option into GE stock, thinking it could never shut down,” said Mitchell. “And here we see that stock is down.” GE’s current stock price of about $8 is about half of what it was two years ago and a quarter of its price three years ago.

Pension Backstop Choking

Across the broader arena, the safety net for employees to protect their pension benefits is also underfunded. In the U.S., corporate defined benefit plans have to, by law, pay an insurance premium to the PBGC. “That is supposed to be the backstop against the possibility of the corporation itself going bankrupt and having insufficient money in the defined benefit plan,” said Mitchell. However, over the past 15-20 years, “the price of those insurance premiums has been going up and up and up, to be able to cover the shortfalls of bankrupt companies from the past,” she added. “The underlying problem is that the government insurance entity (PBGC) simply can’t raise enough money to be able to backstop those defined benefit plans. So, it’s a huge problem we have.”

GE, on its part, has said it will fund $4 billion-5 billion of its estimated minimum ERISA funding requirements for 2021 and 2022. The Employee Retirement Income Security Act of 1974, or ERISA, sets minimum standards for private sector retirement and health plans to protect beneficiaries. Those funds will come from the $38 billion it will raise from the three recent deals. They are the sale of its biopharma business, the merger of its transportation division with Westinghouse Air Brake Technologies, and the sale of a quarter of its holdings in its group company Baker Hughes.

Shift to Employees

After January 1, 2021, for salaried employees, GE will contribute 3% of employee compensation and matching contributions (of 50%) up to 8% of salaries to its 401(k) plan. GE will also offer an additional 2% pay to help with the transition. Executives affected by the freeze on supplementary pension benefits will be offered an installment retirement benefit. For employees who become executives after January 1, 2021, the company will offer a new defined contribution plan benefit. “This is a common benefit offering as companies shift from traditional defined benefit plans to defined contribution plans,” the company stated.

“What this does is it requires employees to start taking control of whether or not that’s enough saving, how much saving to do and how to invest their money,” Mitchell said. They also have to figure out how to manage their money at retirement, so that they don’t run out through retirement, she added. “This is a huge problem given the widespread level of financial illiteracy in America. The advent of the defined contribution plan has put more burden on our own shoulders to be smart about retirement savings.”

“In the U.K., there essentially is no large company that still offers a defined benefit plan.”–Olivia S. Mitchell

The shift towards defined contribution plans reflects broader changes underway in employee compensation trends. “Defined contribution plans provide the opportunity to reward people as a function of their compensation,” said Mitchell. “This really speaks to the changing labor force we have and people’s changing expectations. In the old days, you would start a job at GE or IBM or the old auto companies and you would expect to spend the next 30 years there and retire with a cushy pension. People don’t do that anymore. They’re expecting to change jobs over their careers several times. They want control over their investments. Sometimes, when they invest too much in company stock, they are reasonably concerned about underfunding in defined benefit plans.”

In that changing environment, the 401 (k) model is “more modern” and “more democratic,” Mitchell said, “because it rewards people even if they spend a short time at the company, whereas defined benefit plans penalize people who left after a short time.”

The few employers who have continued to offer defined benefit plans are finding “they’re just getting more and more expensive,” said Mitchell. “The insurance [by the PBGC] is getting expensive. Low interest rates have plagued pension markets, meaning that more and more assets have to be set aside to fund those future promises. So, it’s not a pretty picture. In fact, in the U.K., there essentially is no large company that still offers a defined benefit plan.” She noted that at last count, 16% of companies still have a defined benefit plan compared to nearly 60% two decades ago. Apart from GE, Lockheed is also set to freeze its defined benefit pension plan by 2020. “It’s on the path to extinction in the corporate sector.”

The problem extends to the public sector, where the majority of state and local workers have defined benefit plans, said Mitchell. “But those are underfunded to the tune of about $4 trillion.”
https://finance.yahoo.com/news/ge-pe...143002641.html
Quote:
GE Pension Freeze Shows Workers Need Better Way to Save
Spoiler:
(Bloomberg Opinion) -- Pensions are chronically underfunded. Defined-contribution plans like 401(k)s are needlessly complicated and expensive, and many Americans can’t afford to put away even a small portion of their paychecks. It’s time to get serious about helping workers achieve a secure retirement.

General Electric Co. delivered the latest blow to workers’ retirement hopes on Monday. The company announced that it was freezing pension benefits for roughly 20,000 employees as part of a broader effort to shrink its $22.4 billion pension deficit, the largest in corporate America.

GE had little choice, as my Bloomberg Opinion colleague Brooke Sutherland pointed out, but its huge pension shortfall is entirely its own creation. As I wrote in 2017, GE made some classic blunders with its pension portfolio over the years, such as selling beaten-down risky assets around the 2008 financial crisis and chasing alternative assets at the peak of their popularity.

GE’s biggest mistake, however, is endemic to corporate pensions in general. A key assumption in every pension plan is the expected return from its portfolio — the higher the expected return, the less the company must contribute to meet future obligations. Not surprisingly, executives are cockeyed optimists about the performance of their pension portfolios. “It lets them report higher earnings,” Warren Buffett warned in Berkshire Hathaway’s 2007 annual report, and if they’re wrong, “the chickens won’t come home to roost until long after they retire.”

Those chickens are knocking on GE’s door. In 1999, the earliest year for which numbers are available, the company projected that its pension portfolio of predominantly stocks and bonds would generate a return of 9.5% a year despite obvious signs that assumption was recklessly rosy. The earnings yield on the S&P 500 Index was just 3.4% at the end of 1999, based on that year’s earnings. The yield on foreign stocks, as represented by the MSCI ACWI ex USA Index, was 2.9%. And the yield on 10-year Treasuries was 6.5%. No matter how you mix those investments, the expected return doesn’t come close to 9.5%.

As it turned out, neither did GE’s pension portfolio. It generated a return of roughly 5% a year from 2000 to 2018, leaving the pension fund woefully underfunded. Unfortunately for workers, GE’s story is the rule rather than the exception. The average expected return for pension portfolios among companies in the Russell 3000 Index was 9% a year in 1999, according to Bloomberg data, roughly in line with GE’s target. Two decades later, 83% of Russell 3000 companies that reported their pension status last year are underfunded.

Companies still don’t seem to have fully internalized the lesson. GE dropped its expected return to 6.8% last year, but that’s probably still too aggressive given that its pension fund can ill afford to fall further behind expectations. Roughly 80% of GE’s pension portfolio is allocated to stocks and bonds. Meanwhile, interest rates are at historic lows and U.S. stocks are by some measures the priciest since 1999. The same applies to the hundreds of other underfunded pensions among Russell 3000 companies. Their average expected return of 6.1% is only modestly more sober than GE’s.

Based on that tragicomic history, there’s little indication corporate executives are any better at managing money than their employees. Many companies have all but conceded as much by pivoting from traditional pensions to 401(k)s and other retirement plans that hand over responsibility for saving and investing to workers. But workers are no more likely to succeed. Many earn too little to set aside money in retirement plans, if such plans are even available to them. And those who do participate struggle to navigate the plans’ typical hodgepodge of expensive actively managed mutual funds. Retirement plans should do everything possible to optimize workers’ retirement, not exploit it.

To that end, companies and policy makers can make some simple changes. For one, companies should contribute directly to workers’ retirement accounts. I estimated that employers can give workers a secure retirement by saving $2.64 an hour on their behalf. Also, policy makers should separate retirement accounts from employment, as with individual retirement accounts. It would reduce employers’ liability and administrative burden and allow workers to take advantage of the movement toward free commissions and low-cost indexing and financial advice sweeping the money management industry.

For now, the moral of GE’s story is that companies and policy makers still have their heads in the sand when it comes to retirement saving.


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Last edited by campbell; 10-21-2019 at 11:17 AM..
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  #913  
Old 10-21-2019, 09:14 PM
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ST. CLARE'S HOSPITAL

Quote:
Michelle Singletary: Here’s why you should care about this pension case

Spoiler:
WASHINGTON — Imagine that you’ve worked decades for the same company, often choosing not to take another job for higher pay because your employer offers an increasingly rare benefit -- a pension plan.

Juanita Aikens-English, 64, doesn’t have to imagine. She started working as a nurse for St. Clare’s Hospital in Schenectady, New York, in 1985. She spent part of her career helping to deliver babies.

Aikens-English said she stayed on at the hospital, which largely served the indigent, because she loved the work and the people. She also counted on her loyalty netting her a monthly pension check.

“We would get letters each year saying how much money you would get,” Aikens-English said.

St. Clare’s closed in 2008 with another hospital taking over its facilities and absorbing a lot of its employees. Although the new hospital refused to take on the obligation of the underfunded pension, the former St. Clare’s employees believed that the pension was solvent. Then the letters started to come informing plan participants that their pension was in peril.

Last year, about 1,100 employees -- nurses, orderlies, laboratory technicians, clerks and housekeeping staff -- were told that they either would not get a pension or it would be greatly reduced. About 440 older workers and retirees who met an age cutoff saw their checks cut by 30%.

Aikens-English, who had planned to retire next year, elected to collect her pension early at 62. But she ended up receiving only two years’ worth of a reduced pension check of $1,000 before they stopped.

“I feel like I’ve been cheated out of some peace of mind,” she said.

If you don’t have a pension, or if yours is solvent, you might wonder why you should care about the folks who worked at St. Clare’s.

Here’s why.

With each federal budget season, we are reminded of the ballooning costs of taking care of people who don’t have the financial resources to take care of themselves. Every pension that is shut down or is in financial trouble becomes our nation’s collective problem.

In the case of St. Clare’s, some people have had to sell their homes, because they just can’t afford them any longer, according to Victoria Esposito, advocacy coordinator for the Legal Aid Society of Northeastern New York. Others are having trouble making ends meet on the reduced pension amount.

“These are not people who are looking for a handout,” Esposito said. “They earned those pensions.”

The federal Employee Retirement Income Security Act -- otherwise known as ERISA -- sets standards for private pension plans. As part of the act, the Pension Benefit Guaranty Corp. (PBGC) was established. PBCG operates two separate insurance programs -- one covering pension plans sponsored by a single employer and another covering “multiemployer” pension plans.

However, there is an exemption in the law that excludes religious-affiliated pensions from being covered under ERISA. The exemption includes church-related tax-exempt organizations, which includes some hospitals. Although such entities can choose to be covered by PBCG, there’s no requirement that they pay for the insurance.

St. Clare’s wasn’t covered. And because of the hospital’s former connection to the Roman Catholic Church, the AARP Foundation, Legal Aid Society of Northeastern New York, Legal Services of NYC-Brooklyn Legal Services and a private attorney have filed a lawsuit against the Diocese of Albany.

The lawsuit, filed under state law, says that the diocese should be held responsible for the insolvency of the pension fund.

“The hospital took advantage of the church plan exemption because of its close relationship to the Diocese of Albany,” said Dara Smith, a senior attorney with the AARP Foundation. “So, we believe the diocese is responsible for paying into the pension fund.”

A spokesperson for the diocese says the church doesn’t see it that way.

“The diocese respects the rights of pensioners to do what they feel is necessary to secure recovery of their lost benefits,” said Director of Communications Mary DeTurris Poust. “However, the Diocese of Albany never managed the St. Clare’s pension fund.”

But again, this isn’t just about this one pension plan. There are possibly 1 million people nationwide participating in religious-affiliated pension plans, according to Smith.

“But that’s not to say that all of them are in financial trouble or anything like that,” she said. “But because they don’t have the federal backstop, of course there is always more risk.”

AARP’s advice: Check out your church plan.

“Many people would have no idea that they are not protected by federal laws on pensions,” said William Alvarado Rivera, senior vice president for litigation at AARP Foundation. “It may well be something that people may want to ask if they’re working for a company, a school, a hospital or some other provider -- to ask whether or not their pension is being guaranteed under federal law.”

As I reviewed the facts in this case, it’s clear to me that Congress needs to revisit the religious-affiliated pension plan exemption. Or many more people might find out too late that a promised safety net has vanished.


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Old 11-01-2019, 07:08 AM
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https://www.forbes.com/sites/ebauer/.../#3c0be7f351cf

Quote:
The Hidden Way Employers May Be Shortchanging Employees In Their Pension Lump Sum/Early Retirement Offers
Spoiler:
Are pension plan participants being shortchanged when their former employers offer them lump sum buyouts?

The short answer is, “It depends.”

And this is actually a reversal for me, as I’d previously defended companies against those who say they’re cheating their employees.

It turns out to be a bit murkier.

But let’s backtrack:

Is your former employer offering to buy out your pension accruals with a lump sum, or offering you the opportunity to start your pension earlier than usual? The lump sum offer has become a preferred method for companies to reduce their pension liabilities, and financial experts have warned repeatedly that this can be a poor decision for participants because the value of a pension goes beyond the dollar amount of the payments made over time. That’s because the actuarially fair calculation the company is required to perform is not the same as what it costs to buy an annuity that protects you against outliving your assets.

Today In: Money
At the same time, I’ve written in the past that these programs do not “cheat” employees because employers are required to base their math on actuarially fair assumptions, but employees nonetheless should evaluate their particular situation; in most cases they’re better off keeping the lifetime benefit but there may be some situations (ill health, solid lifetime benefits from another source) in which the lump sum is the right choice. For especially young employees, a rollover to an IRA of money they might otherwise forget about or struggle to find out how to claim at retirement age can be a particular help.

And now I’m hearing reports of a new offer employers are making to their former employees: the option to begin their retirement benefits well in advance of the usual benefit commencement date. Why might companies do this? There are some reasons why this would help them with risk management: This can be a first step toward settling liabilities by purchasing annuities with insurance companies, and this will reduce their risk profile by moving more benefits into payout status. And, again, in principle, this is all done on the up-and-up and with actuarially fair calculations.

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But there’s a loophole. Some companies may be deceiving their employees, or, more neutrally stated, causing them to unknowingly opt out of valuable retirement benefits.

I was passed on a letter sent to a former General Electric employee who was eligible to begin a vested benefit at retirement age, to see how the GE pension buyout looks for an individual participant. The form offered not just a lump sum but, in fact, two new options to eligible employees: in addition to retirement benefits payable at age 60 or 65, participants may elect a lump sum payable immediately or an “early pension option” in which benefits would also start immediately. In this case, the individual was 53 years old and the monthly benefit offered for starting right away was only 45% of the monthly benefit at age 60. How, my correspondent asked, could the reductions for seven years be so dramatically lower?

The answer was in the fine print:

GE offers a pension with a “normal retirement date” of 65, and the lump sum value and the early pension option monthly benefit were both based on the actuarial equivalents to the monthly age-65 benefit.

But the plan also contains a provision for what they label an “early retirement subsidy” in the form of the ability to begin benefits as early as age 60 without any reduction. And the value of this subsidy is not reflected in the lump sum or “early pension option” calculations. It can only be obtained by waiting until age 60 to begin receiving benefits, and choosing an annuity rather than a lump sum.

What’s more, this benefit is substantial. In this particular employee’s case, opting for a lump sum early rather than beginning benefits at age 60 would reduce his benefit by about 30%!—because the reduction was from 65, rather than 60, to 53.

Now, GE, in its defense, would say that its materials are perfectly clear on this point. They say, in bold print and with underlining, that

“This [early retirement] subsidy is not included in the amount in [the lump sum choice] or [the early pension choice], which is based only on your benefit at age 65. If you start your pension before 65 under [the standard retirement provisions], those monthly payments are expected to be worth more than a lump sum or an immediate annuity under [the alternate choices] (assuming average life expectancy).”

Is this clear enough for them to have met their ethical duty to treat plan participants fairly? Should they have made it clearer exactly how much money participants who chose the extra-early monthly payment or lump sum option are leaving on the table?

To be clear, GE is not in violation of any law, and participants are not losing any part of their protected age-65 benefit. But those who elect the lump sum do so without knowing (absent additional research on their part) how much additional benefit value they are forgoing.

And GE isn’t the only company.

UPS is engaged in another wave of what it calls a “Special Pension Payment Offer,” in which former participants with vested benefits are able to take lump sum benefits; as with GE, they are not merely offering the lump sums that make the news but also the opportunity to begin retirement benefits early.

How early? An anonymous employee at a UPS employee discussion board posted the offer he received. UPS is offering him the option to elect an early retirement benefit 20 1/2 years early, that is, at the age of 44 1/2. Not surprisingly, his benefit is reduced by a factor of 0.27—that is, 73% less than if he had waited until his normal retirement age, and, judging by the conversation on that board, no one is seriously considering taking that level of monthly benefit, and advice is split on whether to roll over the money into an IRA or “live for today” (which one presumes were largely in jest).

At UPS, there is no general availability of early retirement subsidies, but certain former employees, depending on employee group, are able to retire early after 30 years of service without any reduction in benefits, or receive other forms of early retirement subsidy, according to an SEC filing. I sought clarification from the company as to whether the value of these benefits are reflected in the offers eligible former employees are receiving, or whether, as with the GE former employees, they, too, are forgoing valuable benefits without knowing it; the response I received was a carefully worded nonanswer to the question.

A former employee also shared with me the “decision guide” being provided to employees. The company does state that

“You will be responsible for investing your distribution, which may increase or decrease your income over your lifetime” and

“If you live beyond your life expectancy assumed in the lump sum calculation, you could end up with less money than if you received a monthly benefit. Alternatively, if you die earlier than assumed in the lump sum calculation, you may receive more under the lump sum option.”

Is this sufficiently meaningful information to enable a participant to make an informed choice—especially when one of those choices is a monthly benefit, but begun at what may be, depending on the participant, a ridiculously early age?

And how many other companies are engaged in the same approach, enabling former employees to unknowingly opt out of early retirement subsidies, and offering early retirement benefits at an age well below what makes any sense for a worker’s financial well-being?

Again, companies are following the law. But are they acting ethically?




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Old 11-06-2019, 07:39 PM
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https://www.forbes.com/sites/ebauer/...U#63de89c66865

Quote:
Should You Take Your Employer’s Lump Sum Offer To Protect Against Their Future Bankruptcy?
Spoiler:
No!

That was easy.

But I was asked that question privately and it seems worth answering publicly, as I’d read (and written) previously that survey data shows people taking lump sums because they fear exactly this: that a bird in the hand is worth two in the bush, that if their employer is in precarious financial condition, they risk losing out entirely if they wait to take a pension benefit rather than getting cash-in-hand now, and then the company goes bankrupt.

But the pension benefits offered through those employers which are engaged in the process of offering lump sum payouts to their terminated vested participants (former employees with vested rights) and to employees preparing for retirement are all protected by the PBGC, the Pension Benefit Guaranty Corporation.

Today In: Money
Readers may have heard of the pending insolvency at the PBGC. I’ve fretted about it. But there are two different funds at the PBGC - the Multiemployer Insurance Program is projected to reach insolvency in 2025 but the Single-Employer Program is healthy.

What’s more, the single-employer arm of the PBGC guarantees benefits comprehensively enough that most retirees won’t notice the difference. For a person with a vested benefit they’re eligible to begin at age 65, if their employer enters bankruptcy and terminates the plan and the PBGC takes over before that person has started collecting benefits, the PBGC will guarantee $5,812.50 per month, or $69,750 per year in pension benefits (2020 figures).

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In addition, employers are not permitted to offer complete lump sum buyouts to plan participants if the pension plan is less than 80% funded (on a funding-legislation basis, which is different than the financial-reporting basis); between 60% and 80% they can offer partial lump sums, and below 60%, not at all.

And, finally, your employer is required to send you an “Annual Funding Notice” each year to inform you of the plan’s funded status. This notice will also contain information on PBGC guarantees that are applicable to your case.

There are some caveats:

If your employer provides cost-of-living adjustments (COLAs), these are not protected by the PBGC. Neither are any non-pension benefits such as life insurance/death benefits or healthcare benefits.

If you participate in a multi-employer plan, this doesn’t apply to you; that fund and its finances are separate.

If you participate in a Church Plan, either by working at a church directly or at certain religiously-affiliated hospitals, you do not have these protections.

If you work in the public sector, it’s a whole ‘nother story: your employer can offer you a lump sum at a value considerably less than its worth according to any measure (as Illinois is doing now) and can reduce your benefit in the future in the event (however unlikely) of bankruptcy (as happened in Detroit). But politics makes the first of these considerably more likely than the second, as far as I can tell.

But outside these special circumstances:

I wrote that folks weighing the lump sum offers might be tempted to view the cashout option as the bird-in-the-hand. The reality is that it’s quite the opposite: a guaranteed pension at retirement vs. the hope that they’ll be able to manage their money well enough to beat that promise.



As always, you’re invited to comment at JaneTheActuary.com! And if you’re looking for personalized advice on a lump sum offer, see here for details.


https://janetheactuary.com/personal-...-sum-advising/
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Old 11-06-2019, 11:10 PM
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I donít know if Jane the Actuary posts here, but it seems like a dumb blanket generalization.

Surely it matters the amount of the lump sum offered, your employerís financial situation, how much of the pension is covered by the PBGC, your mortality profile (age/health/sex) and whether you have a short-term need for cash.

I mean if you were just diagnosed with Stage 4 lung cancer and your employer was St Clareís hospital and you have no savings with which to pay your tripletsí college tuition, and youíre offered a lump sum of $500,000 in lieu of a $1,000/month pension thatís pretty different from if youíre in excellent health and worked for the state of South Dakota and you have no kids and your home is paid off and everyone in your family lived to age 105 and youíre offered $150,000 in lieu of a $1,000 a month pension with a generous COLA. Right?
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Old 11-07-2019, 09:37 AM
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Originally Posted by twig93 View Post
I don’t know if Jane the Actuary posts here, but it seems like a dumb blanket generalization.

Surely it matters the amount of the lump sum offered, your employer’s financial situation, how much of the pension is covered by the PBGC, your mortality profile (age/health/sex) and whether you have a short-term need for cash.

I mean if you were just diagnosed with Stage 4 lung cancer and your employer was St Clare’s hospital and you have no savings with which to pay your triplets’ college tuition, and you’re offered a lump sum of $500,000 in lieu of a $1,000/month pension that’s pretty different from if you’re in excellent health and worked for the state of South Dakota and you have no kids and your home is paid off and everyone in your family lived to age 105 and you’re offered $150,000 in lieu of a $1,000 a month pension with a generous COLA. Right?
Let me remind you of the key part of the title:

Quote:
Should You Take Your Employer’s Lump Sum Offer To Protect Against Their Future Bankruptcy?
Note that it wasn't about a participant's particular personal situation in which a lump sum is worth more than the deferred annuity. Also, she was focusing on PBGC-covered single employer plans.

That said, it still depends: as someone commented elsewhere on the piece, if you're a high-paid person whose pension goes over the single-employer guarantee (as with the airline pilots for many ultimately bankrupt airlines), then sponsor bankruptcy may be very important to consider.
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Old 11-07-2019, 11:41 AM
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Originally Posted by campbell View Post
Let me remind you of the key part of the title:



Note that it wasn't about a participant's particular personal situation in which a lump sum is worth more than the deferred annuity. Also, she was focusing on PBGC-covered single employer plans.

That said, it still depends: as someone commented elsewhere on the piece, if you're a high-paid person whose pension goes over the single-employer guarantee (as with the airline pilots for many ultimately bankrupt airlines), then sponsor bankruptcy may be very important to consider.
I donít think that negates anything I said, although my numbers were perhaps a bit silly to illustrate one of the points.

All else equal, taking a lump sum distribution to protect against bankruptcy is more logical / less illogical if your employer is particularly likely to go bankrupt with a poorly funded plan than it is if they are a very stable company with an over funded plan.
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Old 11-08-2019, 10:54 AM
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FIDUCIARY DUTY

https://www.theepochtimes.com/ibm-em...s_3140409.html
Quote:
IBM Employees Ask Supreme Court to Hold Pension Managers Liable for Loss

Spoiler:
WASHINGTON—A lawyer for IBM employees who invested in company stock told the Supreme Court Nov. 6 that the employees should be able to sue managers of the company’s retirement fund in stock-drop litigation for not disclosing that the company’s microelectronics business was overvalued.

The issue in the case cited as Retirement Plans Committee of IBM v. Jander is whether the fund managers can be held liable under the Employee Retirement Income Security Act (ERISA) for not promptly disclosing problems in the microchip-making division that caused the price of company stock to fall 7 percent. IBM is short for International Business Machines Corp., of Armonk, New York.

The Trump administration, represented by Jonathan Y. Ellis of the U.S. Solicitor General’s Office, argued in court that ERISA doesn’t generally compel corporate insiders to offer disclosures in excess of what securities laws mandate. Many companies across the nation offer their employees 401(k) programs that are governed by ERISA.

Investors say they deserve to be treated fairly by plan administrators, but some business advocates view the case as an opportunity to curb perceived lawsuit abuses.

The U.S. Chamber of Commerce filed a friend-of-the-court brief in April arguing that if the fund loses this legal battle, companies would be less inclined to offer retirement plans that invest money in company stock.

The dispute over IBM’s 401(k) plan is one of many proposed class-action lawsuits that relies on ERISA to contest decreases in the price of a company’s stock, according to Bloomberg Law. The lawsuits assert that “plan fiduciaries, including corporate insiders, have a duty under ERISA to protect workers’ retirement savings when corporate fraud or other wrongdoing causes stock prices to fall.”

The Supreme Court dealt with these issues in Fifth Third Bancorp v. Dudenhoeffer, a 2014 ruling that spelled out what plaintiffs have to include in their ERISA-based stock-drop lawsuits. In light of the decision, most courts have tossed stock-drop lawsuits against corporate defendants such as JPMorgan, Whole Foods, and Citigroup.

In the case at hand, retirement plan participants claimed in 2013 that the IBM division was losing money even though the company set its value at $2 billion. IBM offloaded the foundering division in 2014, leading to a large write-down and a $12.95 one-day drop in its stock price.

Participants claim IBM plan managers failed in their duty to protect investor-employees from the drop. Participants lost at the trial level, but their claim was revived by the 2nd Circuit Court of Appeals, which deviated in part from the principles laid down in Fifth Third Bancorp v. Dudenhoeffer.

Retirement plan lawyer Paul D. Clement argued that ERISA doesn’t require fund managers to divulge inside corporate information.

Clement said employee stock ownership plan managers “do not have a fiduciary obligation to use information gained in a corporate capacity or to use the regular corporate channels of disclosure for the benefit of plan participants.”

“It’s particularly true with respect to the use of regular corporate disclosure channels. The use of those channels is something that is inherently done wearing a corporate hat, and, indeed, the insiders only have access to the regular corporate disclosure channels because of their corporate roles.”

Justice Samuel Alito seemed to agree.

“Do you think that it is workable, practical, to require an insider fiduciary to determine” if disclosing inside corporate information at a specific point in time “will do more harm than good?” he asked Ellis.

“It seems to me, in that situation, the fiduciary has to make a very complicated calculation. But maybe … it’s more doable than it seems to me.”

In remarks to Clement, Justice Neil Gorsuch suggested letting corporate insiders serve as fiduciaries under ERISA was a bad idea.

“It’s not an inevitability that insiders would serve as trustees,” he said. “And I guess I’m not clear exactly what employees gain from having insiders as trustees if, at the end of the day, they wind up being know-nothings, because they can’t do anything.”

Justice Elena Kagan told Ellis it sounds like the Trump administration wants the court “to scrap Dudenhoeffer” and “start all over again.”

Ellis disputed that, saying the administration’s position was “fully consistent” with Dudenhoeffer.

Samuel Bonderoff, the attorney for the plan’s participants, said “it’s useful to have insiders as fiduciaries … because they know the inside information and are, therefore, in a better position to act to protect plan participants.”

Clement expressed “emphatic” opposition to the idea “that we want these insiders to serve as fiduciaries … so they can be sort of canaries in the coal mine, they can take early action based on their unique access to inside information.”

“That is absolutely wrong,” he said. “All these funds are set up to make sure that doesn’t happen. Because if that did happen, these would all be latent security violations.”
https://www.scotusblog.com/2019/11/j...mployer-stock/
Quote:
Argument analysis: Justices debate liability of insiders for mismanagement of pension plans that invest in employer stock

Spoiler:
The argument yesterday morning in Retirement Plans Committee of IBM v. Jander suggests that the justices are not yet settled on a consensus resolution to this case. Like Fifth Third Bancorp v. Dudenhoeffer in 2014, the case asks the justices to reconcile the competing obligations that the securities laws and the Employee Retirement Income Security Act of 1974 impose on the fiduciaries of pension plans that invest in employer stock, known as ESOPs. Imagine (and you don’t have to think too hard, because it happens all the time) that a corporate officer who is a fiduciary of an ESOP, like the officers of IBM who were fiduciaries of the IBM pension plan involved in this litigation, learns of inside information suggesting that the value of the corporation’s stock is likely to decline. The question in this case, at bottom, is what that fiduciary should do.

If the information is material, then at some point in time the securities laws inevitably will force the disclosure of that information. In many cases, though, the securities laws will not compel immediate disclosure. On the other hand, the insider’s position as a fiduciary of the pension plan gives the insider an obligation to act for the benefit of the employees whose pensions are being invested in the company’s stock. If the insider fiduciaries stop buying the stock (or start selling it), the market well might infer that they have information adverse to the company. It also might violate the securities laws to trade on that information without first disclosing it to the market. Conversely, if the fiduciaries disclose the information to the market, we know that the price of the stock will fall, which will harm the employees already invested in it.

Ordinarily, fiduciaries in these cases have responded by taking no action at all until other circumstances lead to disclosure of the information. In response, the employees sue those fiduciaries, arguing that their inaction violated the fiduciary duty that ERISA imposes on them; the employees typically argue that the fiduciaries should have disclosed the information and then stopped buying employer stock. Dudenhoeffer suggested that the fiduciaries in those cases could have liability only if the employees could establish that a prudent fiduciary would have been forced to conclude that disclosure was better than continued inaction. The lower court in this case decided that the plaintiffs had met that standard based on allegations that earlier disclosure is almost always better for existing investors than later disclosure. The Supreme Court granted review to decide whether those allegations – which could be made routinely in this kind of case – satisfy the Dudenhoeffer test.

A few of the justices, at least, seem predisposed to think that the allegations are adequate. Justice Sonia Sotomayor, for example, pressed Paul Clement, representing the fiduciaries at IBM, to explain “what you think is missing from the specifics.” She could see that a trial might “be a battle of competing experts,” but thought that assessing the validity of a “well-founded economic theory” should be “a matter of fact for the jury.” Justice Stephen Breyer’s comments throughout the argument suggested that he would take the same approach if the case came down to that question.

Other justices, however, were more skeptical. Justice Samuel Alito, for example, asked at one point whether “it is workable, practical, to require an insider fiduciary to determine whether the disclosure of inside information to the public at a particular point in time will do more harm than good? … It seems to me, in that situation, the fiduciary has to make a very complicated calculation.” He seemed quite disinclined to impose liability on fiduciaries for their assessment of that problem.

In a parallel vein, Justice Brett Kavanaugh raised the problem of how fiduciaries should respond if disclosure might help one class of beneficiaries but harm another. As he put it in a question to Samuel Bonderoff, representing the employees:

Isn’t the problem … that you have different classes of beneficiaries, some of whom would be harmed, some of whom would be benefitted? And when that’s the circumstance, it’s a little hard to hold the fiduciary liable for violating the duty of prudence, given the different interests of the different classes of beneficiaries?

A major thread in the discussion was how to respond to the argument of the fiduciaries that the justices should adopt a bright-line rule under which insider fiduciaries would have no separate responsibility under ERISA – they would be immune from liability so long as they made any disclosures required by the securities laws. Sotomayor, Breyer and Justice Ruth Bader Ginsburg seemed strongly disinclined to address that argument, which was not included in the papers seeking review before the court. Because the fiduciaries first raised that argument in their brief on the merits, the justices well might refuse to consider it as a basis for overturning the lower court’s ruling. Gorsuch, in particular, seemed to find the argument meritorious, asking at one point why “wouldn’t the securities law be a really good place to start and maybe finish in assessing what those long-term overall health of the corporation interests might be?”

One final point warrants mention, a comment by Gorsuch early in the argument about the role of insider fiduciaries. As the discussion above suggests, these cases arise primarily because of the routine practice of using insiders as fiduciaries of these plans, a practice that seems problematic whenever the interests of the company (in its existing operations) diverge from the interests of their employees (in protecting their pensions). Gorsuch acknowledged the commonplace decision to use insider fiduciaries but stated:

I’m less clear why this Court should be in the business of accommodating that decision. … And I guess I’m not clear exactly what employees gain from having insiders as trustees if, at the end of the day, they wind up being know-nothings, because they can’t do anything. … An outsider might in these circumstances be able to make a reasoned judgment of some kind about whether to sell or buy or act differently in a way that an insider is, as you point out, disabled from doing.

None of the other justices followed up on that comment, but it well might provide a way to avoid the dilemma that Clement portrayed as confining the responses of the fiduciaries.

Editor’s Note: Analysis based on oral argument transcript.

[Disclosure: The author of this post represented the plaintiffs in Fifth Third Bancorp v. Dudenhoeffer, but has played no role in Retirement Plans Committee of IBM v. Jander.]
https://www.scotusblog.com/case-file...-ibm-v-jander/
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Old 11-14-2019, 10:37 AM
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https://www.businesswire.com/news/ho...ining-Discount
Quote:
Corporate Pension Funded Status Improves, Despite Declining Discount Rates -- NEPC Survey
Spoiler:
BOSTON--(BUSINESS WIRE)--NEPC, LLC one of the largest independent, research-driven investment consulting firms, today announced the results of its latest survey of corporate and healthcare defined benefit (DB) plan sponsors. The survey focuses on plan sponsors’ economic outlook, utilization of risk reduction strategies, and how they anticipate changing their asset allocation and investment strategies in 2020.

.@nepc_llc 's most recent Corporate DB survey, reveals how corporate pensions are improving their funded status

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In an environment where corporate pensions are experiencing increased costs and declining discount rates, the survey reveals plans’ funded statuses have improved since 2017. About 60 percent of plans have a funded status greater than 90 percent in 2019, compared to just 46 percent two years ago. These better-funded plans have embraced liability-driven investing (LDI), glide paths, and liability reduction strategies. About three-quarters of plans with a funded status above 90 percent have utilized LDI and two-thirds have 40 percent or less of their assets allocated to equity. Among plans that use LDI, 44 percent have an allocation of 51 percent or higher, compared to just 37 percent and nine percent in 2017 and 2011, respectively.

“The correlation between strong funded status and the use of LDI illustrates that risk management in the form of LDI works to reduce funded status volatility in a declining interest rate environment,” said Brad Smith, Partner in NEPC’s Corporate Defined Benefit Group. “While the use of LDI has remained consistent with prior years, we’ve found that the allocations to LDI have increased significantly over the past two years and are a key contributor to protecting funded status in this market environment.”

Additional top findings of NEPC’s survey include:

A supermajority of plan sponsors (84 percent) believe a recession is on the horizon and is likely to occur in the next three years. Half of those respondents expect a recession in just 12 to 18 months. In line with recessionary fears, many DB plan sponsors are bearish on the stock market (58 percent) and believe discount rates may be the same or lower over the next 12 months (63 percent). When asked to name the greatest threat to their portfolios, plan sponsors are equally split between geopolitical tensions (30 percent), political uncertainty (29 percent), and Federal Reserve action (28 percent).
Plan sponsors have significantly lowered their long-term return assumptions. One-third of respondents have a return assumption of 6 percent or less compared to 20 percent in 2017. The amount of plan sponsors with a return assumption of 7.5 percent or more has declined. Just two years ago, 33 percent of respondents expected that level of returns. In 2019, the number was 21 percent.
Lump sums remain the most popular liability risk reduction strategy, eclipsing plan terminations and annuities. Eighty percent of respondents have already implemented (54 percent), or plan to offer (26 percent) lump sums. Of the 26 percent that plan to offer lump sums, 67 percent plan to offer them to retirees due to the IRS guideline change.
Sixty-two percent of plans, including both open and closed plans, are still accruing future benefits. Plan status remained fairly consistent with prior years. Respondents indicated 38 percent of plans are frozen, 34 percent are closed, and 28 percent are open.
An increased number of plans are unsure if they will stay open (23 percent versus 12 percent two years ago), potentially due to growing costs and interest rate volatility. Consistent with prior years, about 15 percent are planning a full plan termination and 35 percent state it may occur over the next five to seven years. Twenty-two percent considered but rejected a plan termination and 78 percent cite costs to purchase an annuity as the reason. There was a small increase to those planning or implementing hibernation strategies in 2019 (20 percent) compared to 2017 (11 percent).
NEPC’s survey also demonstrates that traditional alternative investment strategies remain popular, as about two-thirds of respondents (65 percent) have an allocation to alternative investment strategies in 2019. Among plan sponsors who are actively investing in alternatives, 40 percent utilize hedge funds, 38 percent invest in private equity, and 33 percent have an allocation to real assets.

While plan sponsors have placed a strong emphasis on evaluating risk reduction strategies, they have not been widely implemented yet. The most popular risk reduction strategy utilized today is defensive equity, which 22 percent of respondents have implemented. Factor-based equity strategies and tail risk hedging are less commonly used, leveraged by just 9 percent and 5 percent of respondents respectively.

The percentage of healthcare and corporate DB plan sponsors incorporating environmental, social, and governance (ESG) strategies has grown compared to NEPC’s 2018 ESG Survey. Eleven percent incorporate ESG strategies today versus six percent in 2018. However, interest appears to be waning as 16 percent of plan sponsors are considering ESG compared to 28 percent in 2018.

For more information, and to view the full survey results and the DB Trends Survey infographic, click here. To view the results and infographic specific to healthcare respondents, click here.

About the Survey

This survey was conducted online by NEPC’s Corporate Defined Benefit Group in September 2019. The survey had 121 respondents across plans of different sizes and focus, including corporations, healthcare organizations, and others. Copyright is held by NEPC.


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