Administration March 11, 2008

Segal Finds PPA Funded Status of Multiemployer Plans Improving

March 11, 2008 (PLANSPONSOR.com) - A Segal Company survey of multiemployer pension plans finds that, under funding provisions of the Pension Protection Act that will take effect this year, the average funded percentage for surveyed plans is 90%.
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Segal said, for calendar-year plans, it expects modest improvement in the average PPA funded percentage by the time plans submit actuarial certifications. Just under one-quarter of plans in the survey anticipate a funded percentage of 100% or more.

If the actuary’s projections reveal an emerging funding problem, a plan will be classified as either being in “endangered status” (the yellow zone) or “critical status” (the red zone), Segal explained. Those neither “endangered” nor “critical” are said to be in the green zone.

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Segal found that the percentage of green zone plans (66%) is higher than the percentage projected last year (58%). Only 9% of plans are anticipated to be in the red zone – seven points less than the percentage predicted last year.

One-quarter of plans are anticipated to be in the yellow zone, according to Segal’s findings.

The Segal report said many trustees continue to make changes that are likely to improve their plans’ zone status, such as reducing future benefit accruals. In addition, according to the report, the market volatility experienced in 2008 will not affect the actual 2008 PPA funded percentage and zone status of calendar-year plans.

Going forward, Segal suggested, the impact of market volatility on all plans can be mitigated by the use of an actuarial asset-valuation methodology that gradually recognizes market value fluctuations over a number of years.

More information is at www.segalco.com .

Administration March 10, 2008

SEI Addresses Implications of Recent Pension Disclosure Proposal

March 10, 2008 (PLANSPONSOR.com) - A CFO Summary just released by SEI Global Institutional Solutions outlines the potential impact on financial executives of the recently proposed pension disclosure guidelines from the Financial Accounting Standards Board (FASB).
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In February, among other things, FASB proposed that Statement 132 be amended to require disclosure of asset categories in which pension funds are invested based on the risks and expected long-term rate of return associated with each asset category. Its proposals also included a suggestion to amend Statement 132 to require employers to disclose input assumptions used in calculating the fair value of plan assets, similar to requirements of Statement 157 (See  FASB Proposes Greater Disclosure of Plan Asset Risk ).

SEI noted these changes could impact the overall pension management process, but will specifically impact the following two areas:

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  • Outside View of Risk May Be a Consideration in Asset Allocation Decisions – SEI said pension plan sponsors have historically made asset allocation decisions based on return objectives or a better match to liabilities while being comfortable with the level of risk the investment presented to the organization. Now, however, the sponsor must understand these decisions to a deeper level and be able to discuss their decisions with users of their financial statements. This will require the sponsor to have strong advisers that provide them with clear understanding of the investment choices and decisions.
  • Risk Elevated as a Primary Factor in Investment Strategy Implementation – Risk has typically been a key factor in asset allocation decisions historically, but it takes on new importance with these changes, according to SEI. The proposed amendments do not tell exactly what measure of risk must be disclosed, but it can be assumed the usual measures must be considered. Additionally, information on concentrations in companies, industries, countries, etc. will also be required, increasing the importance of a portfolio having broad investment diversification across classes, industries, styles, and individual managers to manage risks.

According to the CFO Summary, early reports are that the FASB intends to have the new rule in effect by the end of 2008 with December 15th being the target date. SEI suggests that in preparation, CFOs should start to gain a clear and detailed understanding of:

  • Pension portfolio diversification and overall risk as viewed by outside world,
  • Impact of potential volatility on organizational finances,
  • Strategies for investing in sub-asset classes,
  • Accessibility of required information from current investment vendors,
  • Organization’s risk reporting process, and
  • Ways to better integrate the process to make meeting these disclosures easier.

More information from SEI regarding impacts from disclosure requirements can be found at http://www.seic.com/institutions .

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