The Markets April 17, 2014

Fiduciaries to Restore Contributions to Maryland 401(k) Plan

A lawsuit brought by the Department of Labor (DOL) recently resulted in a court judgment that orders the fiduciaries of a Columbia, Maryland, 401(k) plan to pay restitution for unremitted employee contributions and loan repayments.
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The DOL’s suit, Perez v. Nyanjom, et al. (docket number: 1:13-cv-01909-CCB) was filed with the U.S. District Court for the District of Maryland. The suit names David Nyanjom, Laura Nyanjom, Pulmonary Disease & Critical Care Associates and the Pulmonary Disease & Critical Care Associates 401(k) Plan as defendants. Case documents show David Nyanjom is the sole owner of Pulmonary Disease & Critical Care Associates, a medical practice located in Columbia, Maryland.

Based on an investigation by the DOL’s Employee Benefits Security Administration (EBSA), the suit alleges that defendants David Nyanjom and Laura Nyanjom failed to ensure that employee contributions and loan repayments were remitted to and collected by the plan in a timely manner.

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Case documents show the 401(k) plan at Pulmonary Disease & Critical Care Associates was established in 1998. Another company owned by David Nyanjom, Patuxent Hospitalists LLC, also had employees who participated in this plan. David Nyanjom and Laura Nyanjom were responsible for making decisions concerning the remittance of elective contributions to the plan and were fiduciaries to the plan.

As a result of the consent judgment, the district court ordered that the defendants make restitution to the plan in the amount of $66,474.02 for unremitted employee contributions and loan repayments, $66,392.57 in pre-judgment interest, and $9,750 for costs and expenses associated with the appointment of an independent fiduciary, for a total of $142,616.59.

The defendants were also removed as fiduciaries to the plan and will be permanently barred from serving as fiduciaries to any plan governed by the Employee Retirement Income Security Act (ERISA).

The consent judgment document can be found here.

The Markets April 17, 2014

Corporate Pensions Fall $5 Billion in March

The aggregate funded status of the 100 largest U.S. corporate defined benefit pension plans fell by $5 billion during March, as measured by the Milliman 100 Pension Funding Index.
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The modest setback caused a 30-basis-point drop in the aggregate funding ratio for these plans, which stood at 84% as of March 31. Milliman researchers say the aggregate funding shortfall climbed to $266 billion due to a drop in the benchmark corporate bond interest rates used to value pension liabilities. Flat asset growth also contributed to the funding status decline, Milliman says.

According to index data, meager investment gains of 0.29% for the month kept Milliman 100 plan asset values at $1.399 trillion. The combined projected benefit obligations rose $5 billion during March, increasing the total liability to $1.665 trillion from $1.660 trillion. Milliman says the liability change is a result of a small decrease of two basis points in the monthly discount rate to 4.30% for March, from 4.32% in February. A lower discount rate means corporations must contribute more to their pension funds today to meet future liabilities.

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For the quarter ended March 31, the Milliman 100 saw net asset gains of 0.62%. Since the start of 2014, the funded status has deteriorated $79 billion due to a combination of asset underperformance and interest rate decreases.

Milliman says this is a stark reversal to the course the largest corporate pension plans took during 2013, which proved to be the best year for the Milliman 100 since the index was launched circa 2000. For the first quarter of 2014 the aggregate funded status dropped to 84% from 88.3% on January 1. But the pension plans are still well into positive territory for the preceding 12-month period, up $48 billion since April 2013.

The primary reason underlying those gains, Milliman says, was the strong asset performance that persisted throughout 2013. Discount rates had rebounded from all time lows during 2013, as well, although they have since changed direction thus far in 2014. In all, the aggregate funded ratio for the Milliman 100 over the past 12 months has increased marginally, to 84% from 81.2%.

If the 100 plans tracked for the index were to achieve the 7.4% median asset return project in a related Milliman analysis, and discount rates remained level during the remainder of 2014 and into 2015, Milliman forecasts the aggregate funded status of the plans would improve to 89.1% by the end of 2015. Under an optimistic economic forecast the funded ratio would be closer to 93% by the end of 2014 and 107% by the end of 2015.

The most recent index results can be viewed here.

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