Administration February 4, 2015

Increase in Liabilities Brings Pension Funding Down in January

Wilshire Associates estimates that overall the funded ratio for the sample pension plan decreased by 3.5% during the first month of 2015.
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The aggregate funded ratio for U.S. corporate pension plans declined to 74.3% for the month of January, according to Wilshire Consulting.

The decrease in funding was the result of a greater increase in liability value versus a smaller increase in asset value.

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“We estimate that overall the funded ratio for the sample plan decreased by 3.5% from 77.8% to 74.3% in January. This decrease was driven by the larger increase in liability value of 5.7% versus the 0.9% increase in asset value. The asset result is due to positive returns for fixed-income assets, while the liability value increased due to falling corporate bond yields,” says Ned McGuire, vice president and member of the Pension Risk Solutions Group of Wilshire Consulting.

The funded ratio is down from 85.8% as of January 31, 2014, according to Wilshire data.

The 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 2014 corporate funding study. The most current month end liability growth is estimated using the Barclays Long Aa+ U.S. Corporate Index.

The assumed asset allocation for the sample plan is 33% U.S. equity, 22% non-U.S. equity, 17% core fixed income, 26% long-duration fixed income, and 2% real estate.

Compliance February 4, 2015

Nonqualified Plan Sponsor Loses Lawsuit over FICA Taxes

A group of nonqualifed retirement plan participants argue their employer reduced their retirement benefits by not paying FICA taxes on their accounts per the plan document.
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A federal district court found that, rather than properly withholding nonqualified retirement plan participants’ Federal Income Contributions Act (FICA) taxes as required by the plan, Henkel Corp. caused participants to pay these taxes at the time of each benefit payment, effectively reducing their anticipated retirement benefits. 

The U.S. District Court for the Eastern District of Michigan noted that Henkel admitted in a letter to participants that it had not properly withheld taxes. This resulted in the participants owing more in FICA taxes than they would have owed had Henkel properly and timely paid taxes when they were due. The court granted summary judgment to the participants because Henkel failed to adhere to the purpose and terms of the plan, resulting in a reduced benefit to the participants. 

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According to the court opinion, Section 4.4 of the plan reads:

“Taxes. For each Plan Year in which a Deferral is being withheld or a Match is credited to a Participant’s Account, the company shall ratably withhold from that portion of the Participant’s compensation that is not being deferred the Participant’s share of all applicable Federal, state or local taxes. If necessary, the Committee may reduce a Participant’s Deferral in order to comply with this Section.”

“Pursuant to the plan’s design and purpose, the defendants are required to properly and timely withhold the taxes on the funds of the plan participants while the funds were in the control of the defendants,” U.S. District Court Judge Gershwin A. Drain wrote in his opinion.

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