Compliance November 16, 2017

Democrats Pledge to Protect Union Pensions

House and Senate Democrats hope to pass legislation to “put union pension plans back on solid footing,” but their bicameral position in the minority makes this a tall task.

Reported by

Democratic members of both the U.S. House and Senate convened to promote their own plans for promoting broad-based economic acceleration, paying particular attention to the issue of troubled multiemployer pension plans. 

The left-leaning lawmakers are calling their economic vision “A Better Deal,” one that would “ensure the pensions American workers have earned over a lifetime of work are safeguarded and protected into the future.” While some of the lawmakers first started talking about this package of proposals back in July, the press conference was clearly called to show a unified opposition working to derail the GOP tax reform proposals under debate in the House and the Senate.

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Laying out the “Better Deal,” lawmakers repeatedly suggested pension plans, “including the massive Central States Teamsters Pension Plan, the United Mine Workers Pension Plan, and over 200 more plans impacting workers in every state in the country,” are on the brink of failure and are “threatened by massive cuts.” As laid out by House and Senate Democratic members, this new legislation “would put the pension plans back on solid footing, ensure they can meet their obligations to current retirees and workers for decades to come without cutting the benefits retirees earned, and safeguard them for the future.”

When it comes to actually legislating the Better Deal, it seems the Democrats are coalescing around two bills, one previously put forward by Independent Vermont Senator Bernie Sanders and Representative Marcy Kaptur (D-Ohio), called the “Keep Our Pension Promises Act.” In short, the stand-alone bill would reverse a provision passed in 2014 that, as Democrats put it, “could result in deep pension cuts for millions of retirees and workers in multiemployer pension plans.”

Another proposal to emerge is called the “Butch Lewis Act,” a similar proposal that would essentially be a bolt-on provision to the larger spending bills slated for votes very soon in Congress. Butch Lewis, the former President of Teamster Local 100 and “a leader of the fight to save Teamster pensions,” died in December 2015. His wife, Rita Lewis, spoke during the press conference and thanked the lawmakers for pressing this issue. 

For context, in December 2014, Congress approved and President Obama signed a spending bill that included provisions that allow for dramatic cuts to financially troubled multiemployer pensions. Under this provision, the pension benefits of retirees could be cut by 30% or more, and this has already occurred. Before the law was changed, it was illegal for an employer to cut the pension benefits retirees have earned.

According to Democrats, their legislation “establishes a legacy fund within the Pension Benefit Guaranty Corporation to ensure that multiemployer pension plans can continue to provide pension benefits to every eligible American for decades to come.” This legislation is paid for by closing “two tax loopholes that allow the wealthiest Americans to avoid paying their fair share of taxes.”

Investing November 16, 2017

Willis Towers Watson Redefines Pension Plan Investing Strategy for 2018

The consultancy identifies 10 investment-related terms rendered outdated by change.

Reported by

In “Ten Investment Actions for DB Plans in 2018,” Willis Towers Watson updates 10 terms that have traditionally been used with respect to defined benefit (DB) plans—but says each needs to be revisited in light of regulatory and market developments.

First off, pension plans have dealt with their fiduciary duties by ensuring that any decisions made with respect to the plan are reasonable and documented. In today’s world, Willis Towers Watson says, that won’t fly because DB plans are being held to a higher level of scrutiny than ever before and more parties are considered fiduciaries—and expected to be experts.

Secondly, pension plans have been considered fully funded when their assets have been equal to or exceeded accounting liabilities. The consulting firm says pension plan sponsors need to be more diligent about ensuring that their assets will, indeed, support future benefits for employees.

In the past, pension plans considered their time horizon to be a very long period of time until they would need to make their last benefit payment. In fact, Willis Towers Watson says, because people retire at different points, pension plan sponsors need to be aware that in some cases, their investment time horizon can be very short.

Fourth, pension plans have traditionally decided on an asset allocation strategy and accompanying investment managers and let their decisions rest. Today, Willis Towers Watson says, pension plan sponsors need to continually monitor their investments in light of changing market conditions, saying that in today’s world, a pension plan needs to adopt “the dynamic process of achieving a series of risk allocations that vary with market conditions and reflect the plan’s progress toward its funding and settlement objectives.”

Interest Rate Risk

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Fifth, pension plans have traditionally maintained a short position relative to rises or decreases in interest rates. Today, the consulting firm says, pension plans need to price interest rate increases “into the forward curve, meaning potential gains … are lower than one might expect.”

Sixth, pension plans have handled liability-driven investing (LDI) by extending their interest rate exposure through long-duration fixed income investments. Today, Willis Towers Watson says, this
“can extend beyond long-duration fixed-income assets.”

Seventh, pension plans in the past have diversified their portfolios by investing in various regions of the globe and investment styles, such as value, growth and momentum. Today, Willis Towers Watson says, pension plan managers need to use a greater variety of investments and consider new investment ideas.

Eighth, in the past, pension plan fiduciary committees have met infrequently. Today, Willis Towers Watson recommends that they become more proactive and meet more regularly.

Ninth, pension plan committees have become accustomed to outsourcing just investment manager selection to a third party.  Willis Towers Watson suggests that pension plans outsource the entire investment management process to make it more efficient and less costly and to free up management to focus on their business at hand.

Finally, Willis Towers Watson implores pension plans to focus less on short term investment return goals and “ultimately secure benefits for all plan participants.”

THe report can be downloaded here.

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