Interest in variable plan designs appears to be growing, sparked in part by the increased market volatility and uncertainty of this unusual year.
The latest move to adopt them came in July, when the $6.1 billion United Food and Commercial Workers International Union-Industry Pension Fund, Mokena, Ill., reached agreements with Kroger Co., Stop and Shop Supermarket Co. and Albertsons Cos. to withdraw from the pension fund and contribute to a new variable annuity pension plan.
Once ratified by the membership, the new UFCW and Employer's Variable Annuity Pension Plan will keep monthly employer contributions at the same rate as the national fund, but accrued benefits will be subject to a variable annuity calculation and adjusted annually to reflect net investment returns above or below a hurdle rate of return of 5.5%. Kroger officials said the changes will allow the company to minimize future exposure to market risk.
"The pandemic has really spurred quite a bit of interest in setting up variable plans," said Greg Reardon, a principal consulting actuary with Cheiron Inc. in New York. "Plan sponsors are looking and saying, 'Our plan isn't really doing all that well.' We continue to see volatility in the markets, and now this pandemic throws in an additional layer. Whenever you see additional volatility, trustees will look, so I think interest will be spurred."
For clients that already have variable plans, the actuarial firm has been doing a lot of stress testing, and "it is showing that the plans — as expected — weathered the storm fairly well," he said.