Benefits June 1, 2023

PPG Agrees to $309M Pension Risk Transfer Deal

The transaction with Legal & General and RGA is intended to secure the retirement benefits of more than 4,000 PPG retirees.

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PPG Industries Inc. entered into a $309 million pension risk transfer transaction with Legal & General Retirement America and Reinsurance Group of America Inc., the insurers announced Wednesday 

The lift-out covers more than 4,000 retirees from the Pittsburgh-based Fortune 500 company and beneficiaries with benefits under a defined benefit pension plan sponsored by PPG, a global leader in manufacturing paints, coatings and specialty materials.  

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A lift-out is a PRT transaction in which plan sponsors work with pension consultants or other experts to identify a subset of their plan population whose provided benefits—and the financial liability attributable to those benefits—are transferred to a private insurer, according to Nationwide Financial.  

LGRA is the lead administrator and will be fully responsible for the service and administration of all participants transferred as part of the lift-out. A PPG spokesperson said in an emailed statement that the company settled the transaction in March for certain retirees and their beneficiaries who began receiving their qualified pension benefit prior to or around January 1, 2023. 

PRT sales broke records once again in the first quarter of 2023, when U.S. single premium pension risk transfer sales reached $6.3 billion, a rise of 19% from Q1 2022 and the highest Q1 total recorded, according to data from LIMRA.  

LGRA, in its Pension Risk Transfer Monitor, predicted about $23 billion in PRT deals will close in the first half of this year, compared to $17.6 billion in H1 2022 and $8.8 billion in H1 2021.  

“We’re seeing continued positive secular trends for growth,” George Palms, president of LGRA, says. “It’s always hard to predict where the market is going to land because the multi-billion-dollar, jumbo transactions are the ones that drive the growth, ultimately, in the market. But certainly, if you look at the numbers, … the signs point toward it being a very strong, if not record, year.” 

Palms adds that the recent volatility in the stock market is positive in terms of plan sponsor demand for PRT transactions because it “demonstrates the value of having somebody else responsible for those liabilities and taking them over.” 

“I think if you get to the point of something more catastrophic, like in the event that the U.S. were not to raise the debt ceiling, then all bets would be off and CFOs would be focusing on how they can get enough liquidity to get through the ensuing financial crisis that had been created,” Palms says.  

This year’s second quarter already got a significant boost from an $8.05 billion transfer on May 3 by AT&T to insurer Athene Holding Ltd., owned by Apollo Global Management. The insurer will start making payments to approximately 96,000 AT&T beneficiaries in August, according to securities filings.  

That annuity purchase was funded “directly by assets of the plan via the pension trust underlying the Plan and required no cash or asset contributions by AT&T,” the filing stated.  

In split transactions like the PPG deal, Palms explains that the broker split the deal into two segments: one for which LGRA is responsible, and one for which RGA is responsible. A participant of the pension plan would receive a certificate from both LGRA and RGA, as they both share a portion of the liability. 

“RGA has a 50-year history in the U.S. reinsurance industry and has supported PRT transactions globally for more than 15 years,” said David Lipovics, vice president of U.S. pension risk solutions at RGA, in a press release. “We are delighted to be bringing our exceptional financial strength and global expertise directly to U.S. pension plans.” 

RGA has been a long-term reinsurance partner of LGRA, and the companies are expanding their decades-long partnership to support the U.S. PRT market with “strategic solutions for plan sponsors seeking to de-risk their pension plans,” according to a press release. 

“We are proud to work together with RGA to protect the retirement income of over 4,000 of PPG’s retirees and beneficiaries,” said Palms in a press release. “LGRA is committed to providing exceptional customer service and ensuring a smooth transition for both PPG and the participants. This transaction comes at the close of another historic quarter in the PRT market, highlighting the growing role PRT is playing in the U.S. market.”  

Compliance June 1, 2023

IRS Issues Interim EPCRS Correction Guidance Under SECURE 2.0

Plan sponsors can make additional corrections via SCP, rather than VCP, while a “reasonable amount of time” to discover an error is defined as 18 months.

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The Internal Revenue Service issued interim guidance on Section 305 of the SECURE 2.0 Act last week, permitting a larger percentage of errors made by plan sponsors to be reported via the Self-Correction Program instead of the Voluntary Correction Program.

The SCP allows sponsors to make certain corrections without pre-approval from the IRS, while the VCP requires a fee and pre-approval for proposed corrections.

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Section 305 of the SECURE 2.0 Act of 2022 allowed for more errors, such as loan errors, to be corrected through the SCP. The section permits “eligible inadvertent” errors made by IRA administrators to be corrected by the SCP. It also requires the Department of Labor to accept that corrections made through the Employee Plans Compliance Resolution System have also satisfied the requirements of the Voluntary Fiduciary Correction Program.

Section 305 was effective immediately upon SECURE 2.0’s December 29, 2022, enactment, but it required the Secretary of the Treasury to revise the EPCRS, with a deadline of two years after the law’s enactment.  The interim guidance, issued as in Notice 2023-43, is intended to cover the gap until that revision is finalized.

While the interim guidance allows many of the bill’s intended results to proceed, it explicitly does not permit IRA custodians to self-correct until that final guidance is issued. Elizabeth Dold, a principal in and executive committee member at Groom Law Group, says that when final guidance is published for IRA self-correction, it will be “glorious for every IRA provider.”

The interim guidance also does not address other sections of SECURE 2.0 related to corrections, such as Section 301, which deals with overpayments, and Section 350, which deals with automatic feature errors.

The interim guidance does, however, allow sponsors to self-correct errors without regard for the date of occurrence, provided the self-correction comes within 18 months of an error’s discovery. Dold says this clarifies what “reasonable amount of time” meant in SECURE 2.0, which removed the last-day requirement for self-correction.

Sponsors still must follow the normal EPCRS process, and the guidance clarifies that sponsors can self-correct only if the error was not discovered in an audit, is non-egregious and the sponsor has appropriate policies and procedures. Dold emphasizes that sponsors cannot self-correct errors in plan documents.

Dold says the industry wanted this guidance immediately, and it “gives us enough to go ahead and do corrections for two years.”

 

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