Compliance March 25, 2015

Changes Soon Due for Multiemployer Plans

Expanded annual actuarial certifications for multiemployer plans are due March 31 for calendar year plans.
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The Multiemployer Pension Reform Act of 2014 (MPRA), enacted on December 16, 2014, revised the annual funding certification requirements for multiemployer plans.

The revisions generally apply to certifications for 2015 and subsequent plan years. The Internal Revenue Service (IRS) reminds plan sponsors that for calendar year plans, the 2015 certification is due by March 31.

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MPRA also amended certain provisions of the Pension Protection Act of 2006 (PPA) by:

  • Making permanent the annual requirement to certify a plan’s funding zone: Before MPRA was passed, the annual certification requirement was scheduled to “sunset” on or after December 31, 2014.
  • Allowing for election of Critical status: Plans projected to be in Critical status in any of the succeeding five plan years may elect to be in Critical status in the current plan year. Plans may bypass Endangered status by making this election.
  • Changing rules for emergence from Critical status: This was amended to include a condition for projected insolvency and special rules for plans with automatic amortization extensions.

MPRA added a new zone status available for a plan actuary’s annual certification and added special rules allowing a plan to be treated as being in a particular zone when, before enactment, the plan would have been in a different zone.

More information about the new zone and special rules is here.

Administration March 25, 2015

Rising PBGC Premiums Drive Increase in PRT Activity

Mercer attributes the rise in pension risk transfer activity to PBGC premium increases.
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Major pension risk transfer (PRT) deals announced by Bristol-Meyers Squibb and Motorola in 2014 and Kimberly-Clark in February 2015 in addition to more than 300 non-jumbo deals total approximately $9 billion to $10 billion since 2011, according to the Mercer Global Pension Buyout Index.

Mercer notes that historically, most bulk buyouts were for full plan terminations but, recently, there has been a significant increase in the proportion of sponsors buying out retirees only.

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The consultant attributes this increase in activity to rising Pension Benefit Guaranty Corporation (PBGC) premiums and more attractive annuity pricing compared to balance sheet liabilities.

According to the index, during 2014, annuity pricing relative to balance sheet liabilities was relatively stable at roughly 109%. However, as plan sponsors adopted new mortality assumptions for year-end financial reporting, the average premium declined to around 105%. This assumption update was in response to new mortality tables released by the Society of Actuaries in October 2014.

Mercer explains that these new higher longevity expectations were likely previously recognized by insurers, so the annuity purchase price has not changed, but pension plan liabilities account for a greater share of the price. Consequently pension buyouts are now more attractive relative to the balance sheet liability in the U.S. Mercer expects this to drive increased buyout activity in 2015.

Defined benefit plan sponsors must now report certain PRT activities to the PBGC.

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