Retirement Plan Sponsors
As a trusted advisor, we stand ready to guide Plan Sponsors through the complexities and everchanging landscape of pension plans. Below find valuable updates from our dedicated Defined Benefit Business Council.
Insights From Your Trusted Team
Cash Balance Plans
With the Bloomberg Aggregate Bond Index declining 0.78% for the quarter1, returns for cash balance plans with high fixed income allocations were subdued during Q1, however, modest exposure to equities landed many plans in positive territory for the quarter.
Cash balance updates included in Secure Act 2.0 may make it easier for plans to convert the Interest Crediting Rate from a fixed rate to a market rate, which can be more attractive to both Plan Sponsors and participants.
Given persistent market volatility, Plan Sponsors should pay attention to timing of new plan entrants by reviewing participant balances that may be below the capital preservation floor or those that may be nearing the 415 max.
Traditional Pension Plans
Funded statuses generally improved in Q1 as higher discount rates lowered liabilities and return-seeking allocations increased asset values.
The FTSE Pension Discount Rate increased by 28 basis points (+0.28%) during the first quarter of 2024 to end the quarter at 5.12%.2
With continued improvements in funded statuses broadly, strong equity market returns, meaningfully higher interest rates and expectations for continued market volatility, it may be an opportune time for Plan Sponsors to “lock-in” recent funded status gains via de-risking assets, liabilities or both.
Pension Risk Transfer and Plan Termination3
Recent large pension risk transfer (PRT) transactions by AT&T and Lockheed Martin have been challenged in court.
At issue is the requirement to select the “safest available annuity provider” under the Department of Labor’s Interpretive Bulletin 95-1, and whether the Plan Sponsors’ selection of Athene (PRT provider in both transactions) violated this statute.
These lawsuits face numerous challenges and are unlikely to slow the volume of PRT transactions. With many plans approaching fully funded status, we expect to continue to see robust de-risking activity.
Did you know? We partner with Plan Sponsors to strategically advise on pension risk-transfers. Learn more about our defined benefit de-risking consulting services.
Municipal Plans
Public plans continued to benefit from the strong performance of equities while higher yields have increased the appeal of fixed income. With attractive yields and the possibility of central bank rate cuts on the horizon, Plan Sponsors should assess the sizing and overall credit quality of their fixed income allocations given the protective power and yield benefits fixed income can deliver to help achieve the actuarial expected returns.
Sources:
1Bloomberg Aggregate Bond Index; as of March 31, 2024.
2https://www.yieldbook.com/m/indices/FTSE-pension-liability.shtml
