Benefits June 7, 2013

Don’t Underestimate Benefit Value to Younger Employees

June 7, 2013 (PLANSPONSOR.com) - A LIMRA study found that employers underestimate how important benefits are to their younger employees.
Reported by

Younger employees surveyed indicated they value benefits nearly as much as older employees. Ninety percent ranked medical benefits as a 4 or 5 in importance on a 5-point scale, compared to 93% of older employees. Fifty-two percent each ranked life insurance benefits as important, and 57% of younger employees versus 61% of older employees ranked short-term disability benefits as a 4 or 5.  

However, only 67% of employers guessed younger employees would rank medical benefits as highly, while 25% expected life insurance to be ranked as important, and only 19% said employees would value short-term disability as much.  

Get more!  Sign up for PLANSPONSOR newsletters.

LIMRA noted that employers’ perceptions of the value younger employees place on benefits could affect future decisions about what benefits they offer in the coming years.

Over the past 12 months, LIMRA has surveyed employers’ perspectives on the impact of health care reform and how they plan to react. The study revealed that nearly half of small business employers feel health care reform will have a negative effect on their ability to offer non-medical benefits within three to five years, and more than one-third of large employers agree with that assessment.  

At least one-quarter of U.S. employers are considering eliminating non-medical benefits — including 25% of those employers offering life insurance — no doubt as a way to defray the increasing costs of medical care.  

LIMRA said it is important that carriers and producers educate employers about how much these benefits are valued by all their employees and introduce ways to allow them offer these benefits to their employees without increasing their costs, like offering voluntary benefits.
Administration June 7, 2013

PSNC 13: Pursuing PRT

June 7, 2013 (PLANSPONSOR.com) – The market for pension buyouts reached $37 billion last year. Is pension risk transfer (PRT) right for your defined benefit (DB) plan and your company? 
Reported by

A panel of experts at the 2013 PLANSPONSOR National Conference discussed how plan sponsors can answer that question—and found that the challenges they face may not be what they expected.

Before the passage of the Pension Protection Act (PPA), the mindset for DB plan sponsors was a focus on returns, according to Christopher Rowlins, senior consultant at Fiduciary Investment Advisors. After, how to control funding liability—whether to employ a liability-driven investing (LDI) approach to gradually de-risk over time—is their main concern. He emphasized the importance of recognizing the liabilities in an investment framework. Rowlins warned attendees not to become complacent as the funded status of their plan improves, but to look out for opportunities to de-risk.

Get more!  Sign up for PLANSPONSOR newsletters.

When considering PRT, when is the right time to “pull the trigger”? Rowlins asked. Mark Unhoch, vice president and senior consultant at Dietrich and Associates Inc., said that as part of a dynamic de-risking strategy, plan sponsors should move to get rid of liabilities as funded status improves. But it is not necessary to wait until the plan is fully funded. There is a common misconception that plans must be 130% to 140% funded before a risk transfer process can begin. Due to the changes in lump sum regulations, however, plan sponsors can get retirees out of a plan that is 100% to 120% funded, said Scott Gaul, senior vice president of pension risk transfer at Prudential.

Plan sponsors cannot monetize surplus, he noted, and may only need their plans to be 115% funded. He advised panel attendees to know their end point and be ready for when economic conditions are right. Unhoch agreed, and suggested plan sponsors go to the market to find their number—there could be a 10% difference between what plan sponsors think their plans need and what is required for a PRT, so he stressed the importance of finding out what the specifics are of an individual plan. 

As part of the de-risking process, Gaul pointed out it is not necessary for plan sponsors to commit to fully offloading all of their risk—or even to settle on one strategy. A partial de-risking is possible: Plan sponsors can choose to focus on just longevity or a particular segment of the participant population—those who have smaller account balances, recent retirees or retirees who left the company 20 years ago. De-risking strategies are not one-size-fits-all, Gaul said, and can be phased into a plan. A partial LDI, buyout or buy-in is an option for plan sponsors who are unable to complete the process, but he cautioned that smaller plans may be better off being terminated completely.

If you are considering the costs and benefits of a pension risk transfer, take into account the costs you incur just by waiting to make that decision. In many causes, Gaul said, holding onto the plan can ultimately be more expensive as Pension Benefit Guaranty Corporation (PBGC) premiums, administrative costs and longevity risk add up. No one argued that improved life expectancy is good for participants, but Unhoch noted that sponsors of DB plans do take losses on the tail end of that trend.

Rowlins suggested working with an adviser and actuary to find the best solution, adding that holistic evaluation of the business model is critical. Gaul said plan sponsors’ “last act” as a fiduciary to these plans will be picking the safest possible annuity provider. The most important question to consider, according to Unhoch, is how much certainty is worth to your plan. 


Sara Kelly 

«