Administration May 2, 2012

Pension Plan Funded Status Falls in April

May 2, 2012 (PLANSPONSOR.com) - The aggregate deficit in pension plans sponsored by S&P 1500 companies grew $39 billion in April to $375 billion, according to new figures from Mercer.  
Reported by

This deficit corresponds to an aggregate funded ratio of 79% as of April 30, 2012, compared to a funded ratio of 82% as of March 31, 2012, but the funded ratio is still up from 75% at December 31, 2011.

The decrease in funded status in April was attributable to an increase in liabilities due to declining interest rates. Interest rates on high quality corporate bonds, which are used to measure the pension liability, fell 22 to 32 basis points during the month, as measured by the Mercer Pension Discount Yield Curve. Assets were relatively flat during the month as U.S. equity markets were down about 0.6%, offset by positive returns for fixed income investments.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

“After three straight months of improvements in funded status, April saw a bit of a step back for U.S. pension plans,” said Jonathan Barry, a partner in Mercer’ Retirement Risk and Finance business. “It’s an important reminder to plan sponsors that these plans can go down just as quickly as they went up.”

Mercer sees a continued interest in plan sponsors moving towards risk management strategies to help reduce the funded status volatility that is inherent in most U.S. pension plans. “We are seeing sponsors continue to explore various risk management strategies in 2012, from higher fixed income allocations to cashouts for former employees,” said Barry. “For the past few years, many sponsors have been slow to act on some of these strategies, as there was an expectation that interest rates would rise, but perhaps we are seeing sponsors come to grips with a potential prolonged period of low rates.” 

Mercer estimates the aggregate combined funded status position of plans operated by S&P 1500 companies on a monthly basis. The estimated aggregate value of pension plan assets of the S&P 1500 companies at December 31, 2011, was $1.45 trillion, compared with estimated aggregate liabilities of $1.93 trillion. Allowing for changes in financial markets though the end of April 2012, changes to the S&P 1500 constituents and newly released financial disclosures, the estimated aggregate assets were $1.56 trillion, compared with the estimated aggregate liabilities of $1.94 trillion as of April 30, 2012. 

Compliance May 2, 2012

Employer Cannot Use ERISA to Stop Deferred Compensation Benefits

May 2, 2012 (PLANSPONSOR.com) – An employer cannot use the Employee Retirement Income Security Act’s provisions to terminate benefit payments under a deferred compensation agreement.
Reported by

The U.S. District Court for the Eastern District of Louisiana found that the evidence presented by Mothe Life Insurance Company would allow “a reasonable trier‐of‐fact to find that an ERISA plan did not exist.” The court previously held that the agreement between Mothe Life Insurance and Emile Mothe lacks clear procedures for receiving benefits.   

However, the company presented Massachusetts Mutual Life Insurance Company Prototype Flexinvest Profit‐Sharing/401(k) Plan to its current motion for summary judgment, saying it supplements the procedures contained within the deferred compensation agreement with Mothe, and the agreement coupled with Mothe Life’s plan documents show that the agreement had sufficient procedures such that an ERISA plan was in existence.  

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

The court found that the only mention of the plan, is contained in one paragraph and recites as follows: 

“Whereas, Mothe [Life] and Emile [Mothe] both want to provide to Emile [Mothe], as additional compensation for his services to Mothe [Life], a post-retirement income (or pre-retirement benefits to his beneficiary) over and above what will be available to him under Mothe [Life’s] regular pension and insurance plan for employees.” The court said additionally, the regular retirement plan does not reference the 1999 agreement between Mothe and Mothe Life.  

This court found that this one paragraph does not provide enough guidance for a reasonable person to reference the plan in order to ascertain the needed procedures. The plan is acknowledged in the agreement only to recognize that Emile Mothe will get additional compensation above and beyond his regular pension and insurance. The court said a reasonable person could not ascertain the procedures for receiving benefits by this one statement in the agreement.

On July 20, 1999 Mothe Life Insurance Company entered into a deferred compensation agreement to pay Emile Mothe, III the sum of $9,000 a month for a period of 120 months following his retirement, or pay $9,000 a month for 120 months following his death to his beneficiary.  

Emile Mothe died on July 5, 2003 while still employed at Mothe Life. Mothe Life began making payments to his wife Margaret, but discontinued the payments in July of 2010. Margaret Mothe sued for continuation of the payments, but Mothe Life argued it was permitted to terminate the agreement at any time because it constituted a “top hat” welfare benefit plan under ERISA, and ERISA permits employers to unilaterally terminate top hat welfare benefit plans at any time.  

The court’s opinion is here.

«