According to a Plan Sponsor Council of America (PSCA)
snapshot survey, almost all (95.6%) plan sponsors reported no change in
participant behavior as a result of the fee information. An average of 1.4% of
participants asked questions regarding the fee disclosure information.
Additionally, as a result of the service provider fee
disclosure requirements, 15.4% of plan sponsors sent out a request for
proposal/request for information, indicating that plan sponsors are doing their
due diligence to make sure that the fees their participants are paying are
reasonable.
“Participants are receiving the notices but aren’t calling
or asking questions,” said Bob Benish, PSCA’s interim president and executive
director. “They either aren’t reading the disclosures or they don’t seem to be
surprised by the fees they pay.”
PSCA’s survey was conducted in October 2012, and received
176 responses from defined contribution plan sponsors. Click here for full
survey findings.
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Pension liabilities of the 100 largest corporate defined benefit pension
plans increased by $43 billion in October while the assets backing those pension
promises dropped by $2 billion, bringing the Milliman 100 PFI funded ratio
to 72.6%, down from 74.5% at the end of September. The erosion in funded
status follows funded status improvements in both August and September.
October’s funded status decline was primarily due to a decrease in the
corporate bond interest rates that are the benchmarks used to value pension
liabilities, Milliman said. The projected benefit obligation (PBO) increased to
$1.821 trillion from $1.778 trillion at the end of September. A decrease of 12
basis points in the monthly discount rate—to 3.96% in October from 4.08% for
September—drove the liability increase.
The Milliman 100 PFI asset value decreased to $1.322 trillion from
$1.324 trillion at the end of September. The decrease was due to October’s
investment loss of 0.01%. By comparison, the Milliman 2012 Pension Funding
Study published in March 2012 reported that the monthly median expected
investment return during 2011 was 0.63% (7.80% annualized).
In the 12-month-period ending October 31, Milliman 100 plans have
experienced a cumulative investment gain of 10.5% while, unfortunately,
experiencing a total funded status decrease of $206 billion. In that same time,
the funded ratio of the Milliman 100 companies dropped to 72.6% from 80.9%,
mostly because of declining discount rates.
(cont’d...)
Milliman projects that if the Milliman 100 PFI companies were to achieve a
7.8% median asset return (per the 2012 pension funding study) expected for
their pension plan portfolios and the current discount rate of 3.96% were to be
maintained from 2012 through 2013, the funded status of the surveyed plans
would increase. This would result in a projected pension deficit of $489
billion (funded ratio of 73.2%) by the end of 2012 and a projected pension deficit
of $413 billion (funded ratio of 77.6%) by the end of 2013. For purposes of
this forecast, Milliman assumed 2012 aggregate contributions of $67 billion and
2013 aggregate contributions of $81 billion.
The expected loss in funded status during 2012 (more than $150 billion) will
result in a charge to corporate balance sheets at the end of the 2012 fiscal
year. The expected loss will produce an estimated increase of more than $17
billion in pension expense for the 2013 fiscal year.
The contribution assumptions have not been adjusted to reflect the potential
impact of the Moving Ahead for Progress in the 21st Century Act (MAP-21), which
includes pension funding stabilization provisions. Milliman feels the majority
of Milliman 100 companies will continue to prudently fund the pension deficits
in their respective plans and presumably continue with their existing pension
de-risking funding strategies rather than lower their contribution level to
satisfy minimum standards.
Under an optimistic forecast with rising interest rates (reaching 4.06% by
the end of 2012 and 4.66% by the end of 2013) and asset gains (11.8% annual
returns), the funded ratio would climb to 75% by the end of 2012 and 92% by the
end of 2013. Under a pessimistic forecast with similar interest rate and asset
movements (3.26% discount rate at the end of 2012 and 3.86% by the end of 2013
and 3.8% annual returns), the funded ratio would decline to 71% by the end of
2012 and 65% by the end of 2013.