Low Rates Hurt Corporate Pension Funding

Milliman Inc. says falling interest rates have hurt funding levels at large U.S. corporate pension plans, but that even modest rates increases could push funding levels well over 100 percent.

The ratio of assets to liabilities at 100 large corporate plans fell to 88.2 percent at the end of 2020, down from 89.8 percent a year ago, the Seattle-based firm reports. Assets increased to $1.7 trillion, from $1.6 trillion, but projected benefit obligations increased to about $2 trillion, from $1.8 trillion, according to Milliman calculations.

The discount rates used in benefit obligation forecasts, which are related to interest rates, fell to 2.46 percent at the end of 2020, from 3.2 percent a year earlier. If rates were to increase to 3.06 percent by the end of this year, and to 3.66 percent by the end of 2022, then the funded ratio for the large corporate plans in the study would increase to 104 percent by the end of 2021 and to 123 percent by the end of 2022, according to Milliman.

Meanwhile, the cost of the group annuities purchased to fund pension plan obligation buyouts, or shifts of pension benefit responsibility to life insurers, fell to 99.4 percent of the estimated liability total in November 2020, from 104.3 percent at the beginning of the year, in part because of strong insurer interest in the pension risk transfer market, according to another series of Milliman reports.

In other pension, retirement plan, and group annuity news:

Ameritas, based in Lincoln, Nebraska, has introduced a 403(b) defined-contribution retirement plan program for nonprofit employers, to complement its 401(k) plan program. The company also has added an Ameritas GPS retirement plan investment platform, with support from Matrix Trust Company. The program gives participants the ability to choose their own services and investments, and it also offers a number of planning options, such as several fixed-income investment options, according to Ameritas.

Annexus Retirement Solutions, in Scottsdale, Arizona, has introduced the Lifetime Income Builder program. Annexus is known as an annuity contract designer. The new program, which will be available for purchase in the middle of this year, will let an employer embed a guaranteed lifetime withdrawal benefit into a target data fund or a managed account inside a defined-contribution retirement plan, according to Annexus.

Plan participants will be able to take cash out and move the living benefit feature from the employer’s plan to another retirement savings arrangement through a portability feature, the firm says. Further, it expects to announce the names of insurers and asset managers implementing the program throughout the year. Annexus says its data integration and distribution technology should streamline the process of offering the Lifetime Income Builder option.

Metropolitan Tower Life Insurance Company, an arm of MetLife Inc., has taken responsibility for $765 million in pension obligations for 5,200 retirees and defined-benefit pension plan participants at Weyerhaeuser Company by selling the company a group annuity for pension risk transfer purposes.

MetLife said it’s managing about $3 billion in pension benefits payments per year for about 720,000 annuitants. MetLife’s flow of pension benefits payments is equal to only about 0.3 percent of the amount Social Security is spending on benefits each year, but it’s comparable to the 2019 gross domestic product (GDP) of Aruba, according to International Monetary Fund GDP data for Aruba.

Massachusetts Mutual Life Insurance Company, based in Springfield, Massachusetts, has sold a $280 million group annuity to Unisys Corp. The MassMutual annuity helped the computer company implement a pension risk transfer for some of the participants in its U.S. pension plans.

From: ThinkAdvisor