IRS Release Corporate Bond and 30-Year Treasury
Interest Rates
January 5, 2005 (PLANSPONSOR.com) - The Internal
Revenue Service (IRS) has released the corporate bond
weighted average interest rate and the interest rate on
30-year Treasuries, important for those who manage defined
benefit retirement accounts.
>Notice 2005-9 relates to plan years beginning in
January, 2005, and provides guidance on the corporate bond
and 30-year Treasury rates and the permissible range of
interest rates specified under sections 412 and 417 of the
IRS Code.
>Sections 412(b)(5)(B)(ii) and 412(I)(7)(C)(i),as
amended by the Pension Funding Equity Act of 2004 (See
Whew! Bush Signs
Pension Relief
) provide that the interest rates used to calculate
current liability and to determine required contributions
must be within a permissible range on the weighted average
of the rates of interest on amounts invested conservatively
in long-term investment grade bonds during a 40-year period
ending on the final day before the start of the plan year,
according to an IRS news release. For plan years beginning
in January, the corporate bond weighted average is 6.1%,
with the permissible range at 5.49% to 6.1%.
>Section 417(e)(3)(A)(ii)(II) defines the applicable
interest rate, which must be used for purposes of
determining the minimum present value of a participant’s
benefits as the annual rate of interest on the 30-year
Treasury securities for the moth before the date of
distribution. For January 2005, the 30-year Treasury
weighted average is 5.1%, with the 90% to 105% permissible
range at 4.59% to 5.35% and the 90% to 110% permissible
range at 4.59% to 5.61%.
April 13, 2004 (PLANSPONSOR.com) - The seven-year HR
outsourcing deal with Bank of America was obviously a big win
for Fidelity Investments, but it also meant some significant
changes in BofA's three-year relationship with HR outsource
provider Exult.
It’s a scenario that has played itself out a thousand
times over in the retirement services business – company A,
which uses Recordkeeper 1, merges with Company B, which
uses Recordkeeper 2 – and the merged company puts the
Recordkeeping business out to bid.
However, in the still-nascent field of HR outsourcing such
ousters have remained relatively rare.
Indeed, while a growing number of plan sponsors have
embraced the outsourcing trend (see
Take It Away
), the handful of standout providers have, up till now,
been largely able to concentrate their sales efforts on
plan sponsors new to the outsourcing notion.
While it may be too soon in the product cycle to fully
appreciate the impact of yesterday’s decision, it is
interesting to note that the BofA/Fleet merger brought
together two institutions, both of which had already
embraced some level of HR outsourcing and which, as a
result of their merger, had an opportunity to choose
between two firmly ensconced service providers in the field
(see
Bank of America,
Fidelity Ink Outsourcing Deal
).
Under the terms of the contract, Fidelity
will provide the newly combined Bank of America a range of
human resources and benefits administration services, which
includes HR administration, Health & Welfare, 401(k),
defined benefit plans, payroll and stock plans – services
that BofA previously obtained from Exult.
By signing a deal that will provide outsourcing for a
wide range of human resource functions for Bank of
America’s 250,000 employees and retirees, Fidelity greatly
bolsters their presence in human resources
outsourcing.
In fact, Fidelity told the Boston Globe that the
seven-year Bank of America deal would rank among its top
five outsourcing contracts, which already include IBM and
General Motors.
Financial Impact
The impact of such a massive contract loss has already
made its way to the financial pages.
Following the announcement, Exult came out with forecasts
of decreased billing total somewhere between $15 million
and $25 million in 2005 and approximately $60 million to
$75 million in 2006.
To cover the losses, the company said it ”
expects to partially mitigate the impact” through
“
related cost reduction measures,” a move that may or may
not impact Exult’s 500 Charlotte, North Carolina-based
employees, even as Fidelity announced that the Bank of
America deal will create roughly 375 in Massachusetts and
New Hampshire, a region that was fearful of the impact on
their job base with the possibility of the loss of
FleetBoston positions.
Irvine, California-based Exult will retain some aspects
of its old deal with Bank of America, which was originally
inked in 2000.
Included in the expanded services that Exult will be
providing is recruiting, temporary staffing, accounts
payable, travel & expense, fixed assets and associated
information technology
support
services.
In fact, Exult said that Bank of America will remain “one
of
Exult’s
largest clients.”
The revenue from the requested expansion of
Exult’s
services
is
expected, subject to negotiation, to be $20 to 30 million
annually
beginning
in the third quarter of 2004, according to the firm.
Outsource Options
The decision to embrace full-fledged HR outsourcing
remains a tough one for many employers, though a growing
number are taking a thoughtful look at their
options.
Only 26.8% of the 315 companies recently polled by
Watson Wyatt completely outsource the administration of
their pension benefits, with most (59.8%) choosing a
blended sourcing model (see
Companies Hesitant To Elect Total Outsourcing Solutions
).
And while only half of CFOs, COOs and other senior benefits
executive respondents to a 2003 Fidelity survey have
conducted any formal cost/benefit analysis of their current
outsourcing activities, at least 85% – depending on the
plan outsourced – said they consider outsourcing to have
been a good investment (see
Benefits Execs Say Outsourcing Pays Dividends
).
Indeed, a recent Towers Perrin survey of companies
that have adopted broad-scale HR outsourcing in the last
four years found that more than three-quarters said they
had met short-term cost-saving goals, with 37% citing
“complete success” on this important outcome.
Long-term cost cuts are beginning to emerge as well,
although 56% of the group said it was too soon to tell how
by how much and just 37% overall cited some success on this
front (see
HR Outsourcing Not an Overall Panacea
).