Benefits October 12, 2012

Hostess Proposes Suspension of DB and MEPP Contributions

October 12, 2012 (PLANSPONSOR.com) – Hostess Brands Inc. proposed withholding contributions to its company defined benefit (DB) and multiemployer pension plans (MEPPs) for two years, according to its filing with a bankruptcy court.
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Hostess, in a plan filed with the U.S. Bankruptcy Court in New York, said it would stop contributing to the Interstate Bakeries Corp. (IBC) Defined Benefit Plan—which had $56 million in assets and $84 million in liabilities as of June 2, 2012— for two years and will restart the contributions in 2015. The suspension is intended to reduce Hostess’ debt and permit the company to restructure and emerge from Chapter 11.

The company’s union employees will be subject to an immediate 8% wage cut in the first year, with modest increases in following years, as well as a 17% reduction in health and welfare benefits. The company will withdraw from the 42 MEPPs to which it contributes, followed by a freeze on pension contributions for two years and reduced contributions thereafter, and will reenter if these and other conditions are met. Nonunion employees will be required to make similar sacrifices, with an 8% reduction in wages; the matching contribution provided under the DC plan that was suspended in 2011 will continue to be suspended for two years with reduced matching contributions thereafter.

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Hostess sponsors two different retiree medical benefit plans and two supplemental medical insurance plans, as well as a post-retirement life and health benefit plan. From June 3, 2012 to June 1, 2013, the projected cost of providing retiree benefits is approximately $1,130,225. As of June 2, 2012, the value of the total benefit obligation for retiree benefits was approximately $29.3 million.

Hostess contributed about $8 million a month to MEPPs prior to August 2011; after failing to make contributions that month, no further contributions were made to the plans. The company still owes approximately $1.04 million for the plan year that ended September 30, 2011 and approximately $6.5 million for the plan year that ended September 30, 2012.

In January 2012, Hostess announced intentions to withdraw from MEPPs, and reported about $860 million in debt (see “Hostess Files Bankruptcy After Failing to Reach Pension Agreement” and “PBGC Assumes Pension Liability for Bakery Workers”).

For the full court filing, click here.

Benefits October 12, 2012

Room for Improvement in Higher Ed. Retirement Plans

October 12, 2012 (PLANSPONSOR.com) – A Fidelity report finds higher education retirement plan sponsors lag behind sponsors in other sectors in adopting plan features to improve employees’ retirement savings.
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The report, the first in a series, examines trends in mandatory and voluntary plan design, and highlights three key areas for improvements in plan design: employer and employee contributions, as well as plan participation rates. Employer matching contributions are less prevalent in higher education retirement plans, Fidelity notes; however, during the past few years more plans, especially those in private higher education, have been redesigning their employer contributions to include a match.   

In higher education, an employer matching contribution is often combined with an employer core contribution. The most common design for a match-plus-core contribution is a 5% maximum match (100% up to 5%) and a 5% core contribution, resulting in a 10% total maximum employer contribution.  

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Fidelity says a shift in employer contribution dollars from core to match may result in: 

  • Greater participant engagement: Employees contributing a portion of their own salary take greater interest in and responsibility for saving for retirement;  
  • Increased retirement readiness: Average total employee and employer contributions tend to be higher (depending on plan design), leading to higher account balances; and/or 
  • Reduced costs: Transitioning from a guaranteed payment for 100% of benefit-eligible employees to a contingent payment to a smaller percentage of employees can lead to a drop in overall plan costs.  

 

Adoption of automatic enrollment (AE) and annual increase programs (AIPs) in higher education has also been limited when compared with other segments. Less than 5% of nonprofit health care organizations have adopted AE or AIP. By comparison, 29% of nonprofit health care plans use AE and 49% use AIP; 22% of corporate plans use AE and 76% use AIP.  

Fidelity concludes that implementing an employer match, as well as the use of AE, will increase plan participation rates.  

The Fidelity report is at workplace.fidelity.com/docs/Plan_Design_in_Higher_Education_Summer_2012.pdf.

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