Administration September 7, 2016

DB Funded Status Analyses Show Moderate Differences

Analyses by Mercer, Wilshire and LGIMA varied on whether DB funded status increased, decreased or remained the same in August.
Reported by

The aggregate funded ratio for U.S. corporate pension plans increased by 0.2 percentage points to end the month of August at 76.2%, narrowing its year-to-date decline to 5.1 percentage points, according to Wilshire Consulting.

According to Wilshire, the monthly change in funding resulted from a larger decrease in liability values of 0.3% that was partially offset by a 0.1% decrease in asset values. The year-to-date decrease in funding is the result of a 15% increase in liability values.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Wilshire’s aggregate figures represent an estimate of the combined assets and liabilities of corporate pension plans sponsored by S&P 500 companies with a duration in-line with the Citi Group Pension Liability Index – Intermediate. The Funded Ratio is based on the CPLI – Intermediate liability, with service cost, benefit payments and contributions in-line with Wilshire’s 2016 corporate funding study.  The most current month end liability growth is estimated using the Barclays Long Aa+ U.S. Corporate Index. 

Mercer reports that the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies remained relatively level at 77% during August, as a small increase in discount rates was offset by slight negative returns in equity markets. As of August 31, the estimated aggregate deficit of $570 billion represents an increase of $8 billion as compared to the end of July. The aggregate deficit remains down by $166 billion from the $404 billion deficit measured at the end of 2015.

Mercer notes that the S&P 500 index lost 0.1% and the MSCI EAFE index lost 0.2% in August. Typical discount rates for pension plans as measured by the Mercer Yield Curve increased by 3 basis points to 3.38%.

According to Legal & General Investment Management America, Inc. (LGIMA), pension funding ratios modestly decreased over August. Global equity markets increased 0.39% and the S&P 500 increased 0.14%. LGIMA estimates plan discount rates were unchanged, as Treasury rates rose 7 basis points while credit spreads tightened 7 basis points. Overall, liabilities for the average plan were up 0.40%, while plan assets with a traditional “60/40” asset allocation decreased by 0.16%.

Compliance September 7, 2016

NAGDCA Discusses Fiduciary Responsibilities for Government DC Plans

A brochure includes a checklist for government DC plan sponsors.
Reported by

The National Association of Government Defined Contribution Administrators (NAGDCA) has released a brochure noting that fiduciaries of non-government defined contribution (DC) plans have come under increasing scrutiny in recent years, in part due to participant lawsuits filed against plan sponsors and the resulting media attention.

Though not a legal interpretation of government DC plan sponsors’ responsibilities under state or other applicable law, the brochure suggests these government plan sponsors take on many fiduciary duties similar to those imposed by the Employee Retirement Income Security Act (ERISA). Governmental plans are not subject to ERISA, but that does not mean they lack regulation that provides ERISA-like requirements. Governmental plans are subject to both the Internal Revenue Code as well as applicable state laws.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The brochure suggests things government DC plan sponsors do with their “fiduciary hat” on, including:

  • Establishing policies and procedures for the plan;
  • Administering and operating the plan in compliance with the plan document by ensuring plan policies, procedures and forms match the plan provisions;
  • Keeping the plan document compliant and updated for all required changes in law;
  • Developing a formal written investment policy statement (IPS) to detail the criteria to follow in selecting, monitoring and replacing the plan’s investment options;
  • Monitoring the fees being charged by each investment option to ensure they are reasonable;
  • Selecting and monitoring service providers, trustees, consultants and others who assist with the plan to ensure compliance with their contracts;
  • Monitoring each vendor’s fees periodically and benchmarking them to fees paid by plans of similar size and complexity;
  • Creating and distributing participant communications to educate participants about the benefits of the plan and increase participation;
  • Educating participants about the plan’s investment options and providing the tools to help them save for a secure retirement.

Among strategies for limiting liability, NAGDCA suggests plan sponsors build the structure and framework necessary for prudent plan administration. Plan sponsors should document compliance with prudent processes. It also recommends consolidating to one recordkeeper and limiting the number of core investment options.

NAGDCA says one area critical to effective plan governance is the accurate measurement of plan effectiveness. It suggests plan sponsors monitor plan success by evaluating participants’ retirement readiness.

The brochure includes a governmental plan fiduciary responsibility checklist and can be found here.

«