Compliance August 8, 2023

Some 4010 Pension Filers May Qualify for Reporting Waiver

Due to unusual market conditions, many 4010 filers will struggle to determine if they are required to file, so the PBGC is providing a limited one-time waiver to certain defined benefit plans

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The Pension Benefit Guaranty Corporation has issued a one-time waiver for certain pension sponsors for 4010 filings.

Scott Hittner, a partner in and the chief actuary at October Three Consulting, says that Section 4010 of the Employee Retirement Income Security Act requires companies with a pension plan with less than 80% funding to report additional financial and actuarial information to the PBGC. Waivers will be issued for smaller plans, such as those with fewer than 500 participants or whose aggregate underfunding does not exceed $15 million.

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According to a release from the PBGC, sponsors who have a valuation date between October 1, 2022, and March 1, 2023, might be eligible for a one-time waiver if certain conditions are met.

If a sponsor with an applicable valuation date meets the following criteria, they are eligible:

  • They did not need to file under 4010 for the previous five years;
  • Either none of the plans had a market-based funding level below 85% or the market-based shortfall is less than $15 million; and
  • Every plan below 80% has a value date in the eligible time period.

Hittner explains that in calculating funding under Section 4010, pension funds use a two-year average for interest rates. The two-year average was much lower than the actual interest rates for the time period covered by the waiver, which would have caused many plans with no history of being underfunded to become technically underfunded because of the way interest rates are used in the calculation. The total reduction in liabilities for the plan is not captured by the two-year average, which leads to false positives.

Hittner adds that many plan sponsors with no history of being underfunded would have been swept up, absent a waiver. Some sponsors were “looking to make extra contributions to avoid a filing” when “they were likely to only file for one year only.”

Plans that fall just outside the time range will still have to file, Hittner says, even if they have never been below 80% funding before. However, the waiver “will pick up a majority of affected plans.”

Data and Research August 8, 2023

Pre-Retirees Plan to Collect Social Security Early, Not Maximizing Benefit

Although waiting until age 70 earns a retiree more Social Security benefits, many plan to start collecting earlier due to fears of insolvency, Schroders research shows.

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Even though many non-retirees in the survey said they know that waiting until age 70 to collect Social Security will maximize their benefit payments, the majority will start taking their benefits earlier, according to a recent survey conducted by Schroders. 

Only 10% of non-retired American respondents said they will wait until age 70 to receive their maximum Social Security benefit payments, according to the Schroders 2023 U.S. Retirement Survey, conducted from February 13 to March 3 by surveying 2,000 investors nationwide ages 27 to 79.  

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This choice to forego delaying Social Security payments is deliberate, as Schroders found that 72% of respondents not yet retired —and 95% of non-retired respondents ages 60 to 65—are aware that waiting longer would result in higher payments. 

Respondents to the survey cited several reasons why they are taking their benefits before age 70. With Social Security expected to fall short by 2033, 44% said they were concerned that Social Security will run out of money or stop making payments, thus feeling the need to start collecting earlier. 

In addition, 36% said they will need the money before age 70, 34% said it was their money and they wanted access to it as soon as possible, and 13% said they were advised to take it earlier than age 70. 

When asked to estimate how much monthly income they will need to enjoy a comfortable retirement, non-retired respondents said $4,940 on average, according to Schroders. Meanwhile, all retirees surveyed said that, including Social Security, their total monthly income is $4,170 on average, while 37% said their monthly income is less than $2,500. 

Schroders found that having an adviser pays off, as the average monthly income, including Social Security, for retirees with a financial adviser is $5,075. Retirees with a formal financial plan have an average monthly income of $5,810, almost twice the $3,000 per month reported by those without a financial plan.  

Retirement Income in Demand 

While the majority of respondents said that either their employer did not provide a retirement income solution or they did not know if their employer provided one, many said they would take advantage of one if it was offered. According to the survey, 32% of respondents said their plan provided a retirement income solution, 39% said they did not know, and 29% said it did not.  

The vast majority (82%) of those offered an income solution in their retirement plan are likely to use it, Schroders found.  

Among those who do not know or do not have a retirement income solution in their plan, 55% said they wish they did—including 64% of those nearing retirement (ages 60 to 65). 

“Americans are increasingly looking to their employers for insights and solutions to their retirement income challenges,” Deb Boyden, head of U.S. defined contribution at Schroders, said in a press release. “While this has been a topic of conversation for some time, we believe we are entering a phase of accelerated adoption among plan sponsors for solutions to meet these challenges, with products that provide lifetime income, while addressing sequence of return risk with principal protection, and giving investors the flexibility to take the income when they want or need it.” 

Low Paycheck Replacement Expectations 

Survey respondents also expressed that they do not expect to need to fully replace their final paycheck income in retirement. Only 23% believe they will need to replace 75% or more of their final paycheck with other sources of income in retirement. 

For those who have already retired, the majority (51%) said they are able to replace less than 50% of their last paycheck, 26% are able to replace 50% to 74%, and 24% said they can replace 75% or more.  

Aside from Social Security, the majority (58%) of non-retired respondents said they will rely on cash savings, as well as their workplace retirement plan (53%) and investment income outside of an employer-provided plan (40%). 

Retirees reported using a variety of strategies to turn their savings into income in retirement, such as using systematic withdrawals from retirement accounts (33%), using dividend-producing stocks or mutual funds (24%) and buying an annuity (13%), among others. 

However, almost half of respondents (49%) said they do not have any retirement income strategies and plan to take money from their accounts when they need it.  

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