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  #601  
Old 11-17-2017, 03:23 PM
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Mary Pat Campbell
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CARE NEW ENGLAND

http://ripr.org/post/care-new-englan...ecure#stream/0

Quote:
Care New England CFO: Memorial Hospital Employees' Pension Secure

Spoiler:
Uncertainty shrouds the future of Care New England Health System, which this week moved one step closer to closing Pawtucket Memorial Hospital when it stopped accepting patients into its intensive care unit.

But a top Care New England executive says Memorial employees can rest assured about one thing: their pension plan.

Listen Listening...0:59
Roughly 2,100 current and former Memorial employees are enrolled in the hospital’s pension plan operated by Care New England, the second largest health system in Rhode Island. Unlike some other hospital pension plans, Care New England is legally obligated to fund Memorial’s plan -- even after the hospital closes, said Joseph Iannoni, Care New England’s chief financial officer.

“I believe if anything is secure in Care New England it’s our pension plans,’’ Iannoni said.

That’s because Memorial’s pension plan is federally-insured, which means Care New England is required to make regular contributions into the plan and maintain certain funding levels. Memorial’s plan is currently more than 80 percent funded, Iannoni said.

And if Care New England gets sold -- either to Massachusetts-based Partners Healthcare, as expected, or some other company -- the new owner, he said, also would be obligated to fund Memorial’s pension plan.

That’s very different from so-called church plans, like the troubled retirement plan at St. Joseph Health Services. Church plans are not federally insured and have no funding requirements.

By contrast, Care New England’s pension plans -- including the Memorial plan -- are all covered by the Employee Retirement Income Security Act, or ERISA, which sets minimum contribution requirements for plan operators.

Care New England recently has been been working to shore up Memorial’s pension plan, Iannoni said. In 2017, the company contributed roughly $8.2 million to the plan, he said, above the $7 million anticipated in its 2016 audit report.

“We’ve been funding Memorial over and above the required (amount) since we acquired Memorial at end of 2013,’’ Iannoni said. The total pension contributions, he said, amounts to more than $19 million since 2013.

“Our pans are much more secure than they were a year ago or two years ago,’’ Iannoni said.

More than 300 Memorial employees also have accepted Care New England’s offer to receive lump-sum settlements for their pension benefits, Iannoni said, which will be paid out in December. The payments are part of the company’s “de-risking” strategy to reduce the plan’s liability, he said, “which makes it easier to continue to fund the plan in the future.”

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  #602  
Old Yesterday, 06:37 PM
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Mary Pat Campbell
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PBGC PREMIUMS

https://www.ai-cio.com/news/expect-2...rtality-rates/

Quote:
What to Expect from 2018 PBGC Premiums, Mortality Rates
LDI, pension risk transfers “likely” to increase as new tables, premiums take hold, experts say.
Spoiler:
Due to its late timing, the Internal Revenue Service’s Q4 update to the 2018 mortality rate has sent a shockwave through the pension industry.

While changes to the mortality tables were proposed in January, and expected to be announced sometime within H2 2017, the changes were not made official until the middle of Q3. In addition to the October 4 changes, the Social Security Administration announced benefit changes that will also go into effect next year, including a cost-of-living increase for current retirees and a 1.2% bump in the maximum amount of Social Security taxable earnings.

The timing of the updates has caused a rumbling throughout the industry, with many pension plan CIOs, actuaries, and members of the pension community scratching their heads on how to prepare their plans for the shift, in addition to collectively asking, “Why update these tables now?”

“I would say many of our members and pension administrators are asking the same question, although there are several different ways to describe it, and the IRS would want to make sure that plans are using updated mortality. They have, in the ruling, enabled plans to consider deferring at least for minimum funding if it becomes a hardship on them. But, also, the lump sum information would go in straight away with 2018 plan year,” Dale Hall, managing director of research, Society of Actuaries, told CIO. “I think if you asked a lot of people over the past couple months, could the IRS do something like this, the answer would be [yes], but I think to some extent they may have also been listening to the industry to say, ‘Hey, things get challenging as the window towards 2018 closes.’”

For plan sponsors, the updated and more conservative tables mean increases to lump-sum distribution, Pension Benefit Guaranty Corporation (PBGC) premiums, and funding liabilities. Funding liabilities and their funding targets, which affect funding ratios used to set benefit restrictions and determine contributions, including when lump sums can be offered, may increase up to 5% each.

“To look at the regulation at the beginning of October and say that it’s effective in the next two or three months is a significant issue for them. And, also, it impacts the year-end financials for the companies themselves, and have to be reflected in the company’s balance sheet,” Dennis Simmons, executive director for the Committee on Investment of Employee Benefit Assets (CIEBA), told CIO. “There’s the pension obligations, and then how do you come up with the money for PBGC premiums? And it is in a lot of ways just another death by a thousand cuts, if you will, in terms of trying to be committed to defined benefit plans.”

To avoid PBGC premiums, which will now have even higher liabilities used to determine variable rate premiums than initially stated, plan sponsors will have to increase their pension contributions, which many have been doing for some time. While the impact will vary from plan to plan, cash balance hybrid plans may not see significant impacts, according to Dave Suchsland, senior retirement consultant at Willis Towers Watson in Philadelphia, as told to the Society for Human Management earlier this year when the updated mortality tables were proposed.

“Many plan sponsors have been using roughly comparable assumptions in their corporate financial statements for the past two years,” Suchsland said. “As a result, we expect that, relative to the current IRS funding assumptions, the proposed rule will generally increase liabilities for the funding valuation, which ultimately will result in higher pension plan contribution requirements beginning in 2019.”

For private plans, experts are pointing towards the ever-growing trend of liability-driven investments (LDI) as one way to stave off the premiums.

“What we’re seeing private plans talking about doing is [viewing] these new mortality tables as one more reason to try and de-risk their plan, and they can do that through a couple of different ways. One is to improve their funding value that’s at risk: their fluctuation of their assets and liabilities; and they can do that over time by adopting a liability-driven investing strategy that shifts them into a portfolio that more closely resembles that of an annuity insurer,” Scott Hawkins, Conning’s director of insurance research, told CIO. Hawkins said plans are “likely” to continue this path.

Hawkins also mentioned that another way plans can deal with the growing premiums is with risk-transfer agreements. “They can decide that they will remove some of their risk for some retirees by going to an annuity company and purchasing a group annuity pension risk transfer for that section of those members. [This] removes the liability from the employer, and it is assumed by the insurance company,” Hawkins said.

A third option is longevity swaps, he said. “They can even do [this]: If they got to the point where they’ve got a plan that’s funded, and they made the investment shift, they can purchase a longevity swap where they will approach an insurer or a reinsurer to just have that insurance company take up the longevity risk, because they’ve already managed the investment risk in their portfolio,” he said. “Their longevity exposure, that fluctuation in expected length of life, is an issue, so they’ll have that insurer pick up that risk. They’re not having an annuity buyout or buy-in, but they’re doing an LDI plus a longevity swap.”

Simmons and Hall also agreed that risk-transfers and LDI strategies will continue an upward trend in the wake of these changes.

“There’s a percentage of plans [that] were already considering those options, but this can only nudge someone who can be on the fence [about LDI strategies and pension-risk transfers] in that direction,” Simmons said.

“I think many plans have been considering that in the past, and just looking at the pension plan that I have, the risk overall from my corporation that I want to bear, are there small or larger things that I want to do to transfer that risk elsewhere,” said Hall. “I’m sure many other consulting firms have been talking to plans about those options, and I think it still remains to be seen if there is any pre-synthetic activity given the new mortality tables in place, but it certainly adds a little bit to the discussion.”

However, plans can find some relief as there is some flexibility for transition. If plans find it administratively impractical to implement these regulations, plan sponsors can go through an IRS procedure for a one-year deferral.

“That gives at least for minimum funding and the section 430 part of this the ability to say ‘the use of these tables is going to be very hard for me to implement or would result in an adverse business impact that is pretty large,’ and they can defer by a year,” Hall said. “One thing that is not deferrable, though, is when you implement the lump sum distribution. Those are definitely required to be used by participants retiring in 2018.”

While Hall does not think too many plans taking advantage of the deferral could create an even larger unfunded liability gap between them, he is concerned as to when plans decide to utilize this deferral, if at all.

“Ultimately, everyone will be on the same scale of these new tables and we’ll jump to where everyone is out building those targets on the same basis. I’m not sure it creates a bigger problem necessarily, it’s just when are plans going to recognize the use of the new tables: sooner or later?”

Hawkins said that asset owners and plan sponsors will “need to be cognizant of both parts of their risk exposure” to prepare for the changes.

“The one that’s always more immediate is their investment challenge; how do we reduce that volatility and funding status? That can be done by investment, but over the long term, as they make those improvements and reduce that volatility, longevity becomes a bigger and bigger factor. At that point, they may turn to other solutions, be it annuity buyouts, buy ins, or longevity swaps, to help mitigate that risk,” he said. “What these mortality tables do is make those longevity risks a little bit more apparent to them.”

To help find the answers in the limited time asset owners have, Hawkins said they can start by looking at the tables’ impact on their plans, then consider what’s going on in terms of minimum contributions, and what that, in turn, will do to their PBGC premiums.

“Those are immediate financial impacts they may have to face, [and] they should be figuring out what that is,” he said. “Surveys have shown that plan sponsors are very aware of this, trying to figure out how they de-risk their exposure to both investment and longevity risk. This accelerates the concerns and the issues that plan sponsors are dealing with.”
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