Administration August 9, 2011

Recent Market Drop Deals a Severe Blow to Pensions

August 9, 2011 (PLANSPONSOR.com) - According to the latest figures by Mercer, Market volatility in the first six trading days of August has dealt a severe blow to pension plans sponsored by S&P 1500 companies.
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The aggregate funded status has decreased by $191 billion to a funding deficit of $496 billion and an aggregate funded ratio of 73% as of the market close on August 8. Mercer said this deficit corresponds to a 10% reduction in just six days from its calculation of an 83% funded ratio as of July 31, and a 15% reduction from the peak funded status measured in April of 88%.  

A news release explained that pension plans are affected not only by changes in the assets they hold but also by the market value of their pension commitments – effectively a debt sponsors hold on their balance sheets.  The recent flight to quality is bad for pension plans on two counts – reducing the value of their risky assets while increasing the market value of their pension debt.  

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The decline in funded status was driven by a 13% drop in equities, combined with a fall in yields on high quality corporate bonds during the first six trading days of the month. Discount rates for the typical U.S. pension plan decreased approximately 42 basis points over this period.
Products August 9, 2011

ING Enhances HRA Offering

August 9, 2011 (PLANSPONSOR.com) – ING has announced the release of a newly-enhanced retirement health reserve account program designed to help public sector employers manage future expenses and provide savings for their employees.
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According to the announcement, the ING Health Reserve Account aims to help state and local governments fund their employees’ future health care expenses on a tax-favored basis – contributions, earnings, and reimbursements are all tax-free.

The program offers a menu of more than 100 investment options as well as a third-party recordkeeping solution to help simplify plan administration and 24/7 online account access. ING stated that the program also allows employers to set aside funds to reimburse employees in the future for qualified medical expenses, after they have retired or separated from service.

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The enhanced product also now offers a flexible design that can accommodate two pre-funding vehicles – a voluntary employees’ beneficiary association (VEBA) trust or a governmental trust under IRC Section 115.

“By pre-funding their retiree medical savings plans through a health reserve account, employers may significantly minimize exposure to important, post-employment benefits while preparing employees for health care costs when they will most need this support,” said Brian Comer, president of Public Markets for ING U.S. Retirement Services, in the announcement.

 

-Sara Kelly 

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