Participants’ longer lives are catching up with corporate pension plans. After the IRS rolled out updated mortality tables, the rate at which liabilities are discounted decreased by an average 1.1 percentage points for participants between 45 and 95, and 1.8 points for those between 65 and 95. Those changes are expected to increase plan benefit obligations by about 3% and, combined with rising PBGC premiums, should result in more companies considering their options.
Rate changes: Discount rate decreases mostly affected retirement-age participants, with rates increasing only for those in extreme advanced age. Rates for early-career employees changed minimally.
Money saver: While upfront costs can be high, the largest corporate plans that have moved to offload liabilities have seen declines in both costs and net exposure relative to their peers.
Premium hikes: Compounding the actuarial headaches are PBGC premiums tied to unfunded vested benefits, which are set to increase 12% in January to $38 per $1,000 of UVBs from $34. Per-participant premiums will grow 7%, to $74 from $69.
More bonds: Amid declining return assumptions, increasing fixed-income allocations have become a good option for many plans. Furthermore, higher bond allocations make annuity buyouts less costly.
Data on the
Russell Investments $20 billion club of corporate pension plans was used for exhibit purposes.